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Capital Market Expectations
Capital Market Expectations
Medium
An analyst builds a DCF model for an equity index. The analyst assumes terminal real earnings growth of 4% per year in perpetuity, while trend real GDP growth is expected to be 2%. The analyst's assumption is most likely:
A
Inconsistent with the discipline imposed by trend growth, because aggregate earnings cannot permanently grow faster than the economy
B
Appropriate, because earnings growth is driven by productivity, not overall GDP growth
C
Conservative, because terminal growth should typically exceed GDP growth
D
Appropriate if the analyst expects corporate margins to expand indefinitely
Select an answer to continue
Tags
#trend-growth
#dcf
#terminal-growth
#discipline
#cme-framework
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