If expected inflation rate decreases, what would happen to the P/E ratio? WIll in decrease as well?
Interesting question… decrease in inflation would reduce the required rate of return (k) since investors require less return to beat inflation. Assuming dividend payout ratio, and ROE are fixed this would increase PE since PE = (1 - div payout)/(k - g)
thats kinda true… but in reality, wouldnt dividen payout ratio decrease ? or growth will increase?