2010 morning session question 4

I am confused why use the 760*0.035 to calculate the dividend. Didn’t the question say"corporate earnings of the S&P 500 Index constituents are $51.80"? why not using the 51.80, although the number we got deviated a lot from the fundamental value.

can anybody provide any idea

when dividend is quoted as say 3.5% - isn’t it on the original face of the index (not on current face)… not seen the question, so am guessing here.

Div yield is computed on index value (whihc is like the stock price - 760), not earnings (51.80). I did the same thing you did, but ended up with the right answer after some adjustments.

I can not find the corresponding reading from this year’s book. Anybody can provide any theoritical support?

Its more a level 1 topic. the questions says to use the constant growth DDM. Find next year’s dividend and discount it