1. The Shanghai Stock Exchange composite index on Jan 1, 2010 was at 3289.75, and had a dividend yield of approximately 0.9%.For simplicity, treat the index as a stock with P₀ = 3289.75 and D₁ = 29.60775.

The market consensus was that dividends would grow at the rate of g = 0.106 or 10.6% per year, which is equal to https://www.macrotrends.net/countries/CHN/china/gdp-growth-rateFor simplicity, assume that Chinese GDP and dividends on the Shanghai Stock Exchange composite index both grow at this rate in perpetuity.

1. Based on the date above, what is the implied return of an investment in the Shanghai Stock Exchange composite index?
2. If the expected rate of return on Chinese stocks remained at the same level as you calculated in part a) but the market's estimate of the dividend growth rate decreased to 8% per year (the growth rate of GDP in 2012), the Shanghai Composite Index will decline. What would be the new value of the index?