GK - repricing return

CFA Level III
#1

  • Current P/E = 15.6

  • Expected P/E 10 years prior: 15

How to calculuate the repricing return?

The solution is 0.4%.

#2

%ΔP/E = (15.6 − 15) / 15 = 0.4%

I wrote an article about Grinold-Kroner that may be of some help: http://financialexamhelp123.com/grinold-kroner-model/

#3

From what I recall, this is the process

=(15/15.6) ^ 0.1 - 1 = -0.39%

The answer is negative as expected PE is LOWER than current PE. The power is 0.1 because the decline is expected to take 10 years (1/10 = 0.1)

#4

-4%?

#5

S2000magician your answer comes to 4%, I’d go with the Soft Dollars’ calculation (oops… its Hard Dollars)

#6

That should be the solution.

#7

What question from the text is this from?

#8

It’s in the 2014.b Item Set Mock Exam. The Ptolemy case/item set.

#9

^ thanks

#10

This was a badly worded question; expected PE 10yrs prior… what does that even mean?..

#11

.

#12

FYI for everyone’s benefit.

Magician’s formula is correct. if you want to confirm, look at R 16 EOC 4 B.

#13

Yes and Now. The EOC does not explicitly say that the capital market expectations are for a special future period.

If we refer to the next year (as I think it is in the EOC), it should be: %ΔP/E = (15-15.6) /15.6 = - 3.85%

If we refer to a 10-year period, it should be: %ΔP/E = [(15/15.6)^0.1]-1 = - 0.39%

Right?

However, as I see now: Junes’s statement might be weird, too: Expected P/E 10 years prior : 15 --> So, are you referring here to the past or the future :smiley:

#14

The solution shows June’s solution as the correct one. However, the wording is extremely weird, they should have left out the prior…

#15

So, the 10-year calculations should be more correct.

Maybe they base their expectations on historical data… cheeky