Question

39. In the period of 1995-1999, the US stock market had soared, sending major composite indices to record highs. There had bee dividend-price ratio had fallen to a record low by the end of 1999. Although it turned out to be a n rising concern about the overvaluation of the stock price. Indeed, the er on, people were not so sure at that time if this was a proof of a bubble in the stock price be oamsherthe hieh stock price mielht have reflected the following factors sxcspt a. higher expected future dividends b. rising equity premium c. low interest rate d. higher expected future earnings e. all of the above might have contributed to the record high stock price.

Answer 1

39). e. All of the above.

Low interest rate boosted funds which can be invested in equity.

Rising equity premium increased demand for equities

Higher future earnings and expected future dividends boosted demand for equities.

40). b. Asymmetric information

Asymmetric information is the party who pocesses inferior information about the other party.