12. Suppose an analyst estimates a 2% dividend yield, long-term inflation of 2.1%, earnings growth of 3%, a 0.8% increase in total shares outstanding, and P/E repricing of 0.3%. How much is the expected return on the stock market based on Grinold and Kroner Model and Gordon Dividend Model?

1. 5%; 6.6%
2. 8.2%; 5%
3. 6.6%; 5%
4. 4.9%; 6.6%

13. Go back to Problem 12 above. A 0.8% increase in total shares outstanding implies:

a. The stock market is overvalued.

b. The stock market is undervalued.

c. Fewer firms buyback their stocks through the market than those conducting SEOs.

d. At least 0.8% firms in the market buy back their stocks.