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bkballa

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tT
发表于 2013-4-12 23:19 | 只看该作者

What am I missing - equity risk premium

question, driving, equity
this is driving me nuts
pg346 CFAI equity book (question is on pg 348, number 19)
Current level of S&P500 is 1200
Current div on the S&P500 is 30
Long term US gov bond yield is 4.75
Future earnings growth rate of the S&P500 is 6.75
The gordon growth model estimate of equity risk premium is closest to:
the answer is 4.67%
R=D1/E0 + G
I get the D1/E0 part, but not G
The have G as = .0675-.0475. Why? What am I missing?

 

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manasib

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2#
发表于 2013-4-12 23:19 | 只看该作者
rf = 4.75
30*1.0675 = D1
D1/E0 = 30*1.0675/1200 = R-G
R = 30 * 1.0675 / 1200 + 0.0675
This R = RM
ERP = RM-RF
so subtract 0.475 from it
so 1.0675 * 30 / 1200 + 0.0675 - 0.0475 = 4.67%

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bkballa

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3#
发表于 2013-4-12 23:19 | 只看该作者
I’m such an idiot…I thought in my head the return of the S&P as a stock return for the asset - in this case the “asset” is the market…
stupid mistakes are going to be the death of me..

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morebeans

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4#
发表于 2013-4-12 23:19 | 只看该作者
Or solve for R_ce using DDM, then plug into CAPM.

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