1. Use the information below to calculate implied equity premium as on January 1, 2012. On January 1 2012, S&P 500 was at 1,257.60 and analysts expect earnings to grow at 7.18% in the next five years. After year 5, we will assume that earnings on the index will grow at 1.87%, the same rate as the entire economy (risk free rate). Table 20: Dividends and Buybacks on S&P 500 Index: 2002-2011 Year Dividend Yield Buybacks/Index Yield 2002 1.81% 1 1 .58% 3.39% 2003 1.61% 1.23% 2.84% 2004 1.57% 1.78% 3.35% 2005 1.79% 3.11% 4.90% 2006 1.77% 3.39% 5.16% 2007 1.92% 4.58% 6.49% 2008 3.15% 4.33% 7.47% 2009 1.97% 1.39% 3.36% 2010 1.80% 2.61% 4.42% 2011 2.00% 3.53% 5.54% Average: Last 10 years = 4.69% 1. Use the information below to calculate implied equity premium as on January 1, 2012. On January 1 2012, S&P 500 was at 1,257.60 and analysts expect earnings to grow at 7.18% in the next five years. After year 5, we will assume that earnings on the index will grow at 1.87%, the same rate as the entire economy (risk free rate). Table 20: Dividends and Buybacks on S&P 500 Index: 2002-2011 Year Dividend Yield Buybacks/Index Yield 2002 1.81% 1 1 .58% 3.39% 2003 1.61% 1.23% 2.84% 2004 1.57% 1.78% 3.35% 2005 1.79% 3.11% 4.90% 2006 1.77% 3.39% 5.16% 2007 1.92% 4.58% 6.49% 2008 3.15% 4.33% 7.47% 2009 1.97% 1.39% 3.36% 2010 1.80% 2.61% 4.42% 2011 2.00% 3.53% 5.54% Average: Last 10 years = 4.69%