The South sea bubble ; the rise of the bank of England
In 1720, were the SSC’s shares fairly priced at: a. the peak price of GBP950 per share, b. the proposed rescue price of GBP400 per share, and/or c. the price prevailing in early October 1720 of about GBP250 per share? What price-to-earnings ratio would such prices imply? Using any of the standard equity valuation models, solve for the growth rate necessary to justify these share prices. Alternatively, solve for the present stream of earnings necessary to justify the price.
