Grinold-Kroner and Dividend yield

CFA Level III Equities
#1

Hi all,

Rencently I came across an exercise related to Grinold-Kroner that confused me. Hope someone can enlight me.

Given the historical data(past 100 year):

Dividend yield = 4%

Equity Repurchase yield = -0.5%

The current and forward looking Data: Expected real equity earning growth rate = 2.7%

My confusion is that the dividend yield is historical so we need to convert it by 4%*(1.027) and then deduct the equity repurchase yied for income return. But the standard answer is just 4% - 0.5%=3.5%. Is it supposed the historical diviedend yield is already D1/P? Thank you.

#2

I’ve been through that exam and remember this question - if I recall correctly, it asks for the sources of _ historical _ nominal return. Be careful there…

2009 CFAI AM, right?

#3

yes it is 2009 AM, under the time pressure of AM session these careless mistakes is killing me…

#4

I’m not 100% sure, but I bet you don’t lose much credit for adjusting the dividend in this example. The question was not clear, and you showed you know what you’re doing