1. The S&P China BMI Index on 30 September 2009 is 358. Forecasted 12-month earnings per share for the composite are 18.00 RMB and the current annual dividend rate for the composite is 7.90 RMB. Assuming an 8.0 percent inflation-adjusted equity discount rate, a thirty-year decline in dividend growth rates from an initial growth rate of 8.25 percent, and a terminal sustainable growth rate to perpetuity of 4.25 percent, compute the composite index price level implied by the H-Model

(Equation 11.4). Next compute the justified P/E ratio implied by such price level.

2. Assuming the same annualized dividend rate of 7.90 RMB, using the Gordon growth model compute the discount rate required to reproduce the prevailing index level of 358 under different growth assumptions, specifically assuming an 8 percent real growth rate of dividends to perpetuity, rather than a gradually slackening rate of growth as in Question 1. Evaluate the result.

3. Assuming the same information in Question 1, what would be the appropriate composite index price level and justified P/E ratio, if the period at which the 4.25 percent growth rate to perpetuity is reached

(a) at year 20,

(b) at year 40?