Question 3 of Problem Set 6: Gordon Formula- how to estimate rate of return, p/e rate, etc. Please help!

Assume that the S&P 500 Stock Index is currently at a PIE multiple of 25 and had an expected dividend yield of 1% percent (2004 dividend). a) Use the Gordon Formula and estimate the rate of return for the S&P 500 using the historical rate of growth of dividends, which has been 61/: percent. b) Estimate the rate of return for the S&P 500 at dividend growth rates of 5, 6, 7, 8, and 9 percent. c) Long-term AAA bonds yielded 6 percent in the summer of 2003. According to Ibbotson Associates, common stocks have yielded 5 percentage points more than long-term AAA bonds over the 1926-2002 period. If stocks should be priced to yield 5 percentage points more than longterm governments, at what P/E should the S&P sell if the growth rate of dividends is 5, 6, '7, 8, 9, and 10 percent? (Do a separate calculation for each growth rate.) d) Now suppose that the appropriate risk premium (the excess return over long- term government bonds) is only 2 percentage points. At what PIE should the S&P sell if the growth rate of dividends is 5, 6, 7, 8, 9, and 10 percent? (Do a separate calculation for each growth rate.) On the basis of your calculations, do you agree with Robert Shiller who argued in his book, \"Irrational Exuberance,\" that stocks are still wildly overpriced