2011 AM Q4E, Calculation & Justification (no spoiler)

CFA Level III
#1

In the CFAI 2011 actual AM exam, question 4 (Equity Market Valuation) part E:

Determine, if the broad equity market is overvalued/fairly valued/undervalued according to the Fed Model & the Yardeni Model. “Justify each response with one reason. Show your calculation.”

Is there any other reason than calculation? Is there anything else needed than the calculation of the ratios and concluding whether the market is fairly valued to get all the points?

#2

you need to state that because e1/po < = or > yield on rf debt, then it is over, under or fairly valued… not just get an answer.

#3

Ok, thanks! But it would be fine to state for the Fed Model: (fictive numbers)

government yield (3%) < equity earnings yield (4%) --> earnings yield relatively high and equities undervalued

#4

4% / 3 % = > 1 therefore equities are undervalued …