brain_wash_your

the guideline answer is not wrong
   you are reading the question wrong

dmar

I got 3.5% also. I have my own simple way of looking at this and I am not budging now.
If the question gives the repurchase yield, that is the question says repurchase yield is- x%
I calculate the income return as
dividend yield + repurchased yield.-(x%)
If the question states that outstanding shares has decreased  as a%which means that cash has been received from share holders I calculate the income return as
dividend yield +(-a%)
This works for me.

chunty

Sometimes,and this is not the first instance-we need to acccept the unacceptable -that the guideline answer is wrong

edgeon

I m giving up

maratikus

And looking at the curriculum -page 35,Volume 3,CFAI Readings :

The term

badonkus

Let me quote from the Grinold again:
The second term, –

brainsX

Why would you add it?
Think about it as buyback… If the company is buying back shares it means more for you. So higer expected return.
in this case the repurchase yield is negative which mean they issued shares.. So it’s bad for you. You are being diluted.
another way of thinking about it: the YIELD is negative ( if it helps use the word RETURN instead of YIELD) . If you were to buy a bond with a negative yield (return)  would you be happy? No. Because you would be loosing money. Same here the YIELD is negative so your expected return is lower.

mkytz15

sorry monk
this does not match up with what is in the curriculum.
Please look at Example 10 SS8 Asset Allocation.
There Repurchase Yield was 1.0% - and -DeltaS = -1 and -(-1) was done.
So here when Repurchase yield is -0.5% -DeltaS = -(-0.5) so -0.5 should be done …
this is in the curriculum and nothing else should matter at this point in time.
From the exam answers standpoint on the 2009 exam - the -0.5% repurchase yield HAS BEEN DEDUCTED from the D1/p to arrive at a rate of 4 - 0.5 = 3.5% …

dyga

Sorry for the double posting

wizofoz

Okay-let me just quote Grinold and Kroner (this is all on the CFA website, from their paper A Supply Model of the Equity Premium-link below)
E(Re) = (D/P -