Grinold Kroner Example Discrepancies

Question 5 2009 AM

Grinold Kroner uses all historical values, if you had used the forecast inflation and earnings growth, you missed it.

Question 4 Page 112, book 3

uses all forecast values. use historical, you miss it.

I get that Grinold Kroner is Expectational, but 2009 exam you’d have missed it using expectational data.

Somebody make sense of this please…

i believe the question explicitly stated to use the historical data

but I agree, in the CFAI text it says to use expected inflation and growth, not historical

The question (2009 AM) does not state explicitly to use historical at all.

grinold kroner - if you carefully read the white text in the cfai book - is used for BOTH historical as well as expectational scenarios.

Ok CP, great, do how do we know?

In 2009 do we use historical because the rest of the data was historical?

What about the EOC? how did we know to use expectational and not historical? The question says calculate the “expected” is that enough to go on? i think not, as the 2009 question says “calculate the expected” also.

Question 5A says: Determine, using info in Exhibit 1 and GK model, the component sources of HISTORICAL NOMINAL return for UK equities.

i interpret that to use the historical data, not current/forward data

The question reads, "

Determine , using the information in Exhibit 1 and the Grinold-Kroner model, the component sources of the historical nominal return for U.K. equities:"

btw , mcap11 is correct . the 2009 AM paper says and I quote here:

A. Determine, using the information in Exhibit 1 and the Grinold-Kroner model, the component sources of the _ historical _ nominal return for U.K. equities:

OOPS!! Big apologies guys, I framed the original question using 2009, but then when MCAP stated that the question said to use historical I went back and looked at a grinold Kroner question from 2007. - 2007 was open with one binder on my desk and 2009 was open on another. I mixed them up.

Thanks for setting me straight.

So sorry. You are correct. So we assume expectational unless asked to use historical.

I have a question here - why isn’t the repurchase yield positive? We have the equation as (- Del S) and here Del S is negative. So shouldn’t 0.5 be added instead of subtracted?

i have found it both ways in the text. i think the most consistent is if they give you repurchase yield is 1% then you subtract a negative 1 so thus the negatives cancel and add it to the model.

repurchase yield , if given use it as is , keep the sign same.

If given as share increase % , then neg. sign

If given as share decrease % , then positive sign

so if they issue shares it subtracts 1% from div yield and if they decrease shares it adds 1% to div yield

repurchase yield = negative of change in oustanding stock

Eg. If outstanding stock decreases (increases) => repurchase yield is positive (negative)

This question got me as well. I never saw them backing into P/E adjustment. Now we know! Beauty of taking mocks.