The MSCI World is a portfolio consisting of 1,654 companies, weighted by their (free float-adjusted) value. It is often taken as a measure ofthe World stock market as a whole. This question examines the assumptions on growth implicit in the valuation of the MSCI World.On December 30th, 2016, the dividend yield (the ratio ofexpectep dividends next year to price today) ofthe MSCI World is 0.0248. The price-earnings ratio (ratio ofprice today to expected earnings next year) is 16.27. The price ofone share ofthe MSCI World is $1,783. Assume the required rate of return for the MSCI World is 12%. (All sub-questions are equally weighted).

a. Determine the expected earnings per share next year (EPSl) and the plowback ratio for the MSCI World. b. Assume that plowback and the return on equity for the MSCI World will remain the same in perpetuity. What must the return on equity (ROE) be to justify the price of $$1,783per share?

c. What does this return on equity imply about expected growth in earnings and dividends? d. What is the net present value ofgrowth opportunities (NPVGO) implicit in the price of the 74.52? Comment on your results.