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.