Repurchase yield for Grinold Kroner Model
Clearly, this is a very easy concept. If a company repurchases its shares there is a positive yield and the yield is added in the Grinold Kroner model. What makes it confusing is when the question doesn't explicitly say if the company buys or sells shares.
The income return portion of the equation is D/P - (change in S).
In the 2009 morning exam on question 5 it gives the change in S as -0.5.
According to the equation this would be D/P - (-0.5).
But of course the answer is the opposite. The repurchase yield lowered the income return in this case. How do you know when to add or subtract the repurchase yield? |