this is the formula on slide 25

9 pts Question 3 Capital Markets Forecasts: Stock Market Return Hint: As discussed in class, this question is on the test. The formula is on slide 25 of the Capital Markets Forecasts slides. What is the return of the stock market given the data below? Note that the data is in decimals. For instance, real GDP growth of 0.080 is 8.0%. Please enter your answer in three decimals. An answer such as 3.5% should be entered as 0.035. IMPORTANT: DO NOT ROUND INTERMEDIATE STEPS IF YOU CALCULATE THIS IN MORE THAN ONE FORMULA. 0.080 Real GDP growth 0.020 Inflation rate 0.000 The extra growth rate of stocks (stock sales growth versus nominal GDP growth) -0.01 Share growth rate 0.10 Profit margin growth rate -0.21 P/E growth rate 0.03 Dividend yield Stock Returns Disaggregated Stock returns can be divided into components Stock Return = (1 + Real GDP Growth Rate) * (1 + Inflation Rate) * (1 + Extra Growth Rate for Stocks) * (1 - Share Growth Rate) * (1 + Profit Margin Growth Rate) * (1 + P/E Growth Rate) 1 + Dividend Yield Where growth rate factor value, / factor value, - 1 Where dividend yield - dividends / price Sales are driven by real GDP, inflation, and a premium growth rate (sales for stocks may not grow at the same rate as GDP) . (1+real GDP growth rate) *(1 + inflation rate) - 1 . nominal GOP growth rate Recall: Lenings/sales profit margin Sales (above) profit marginearning Earnings / shares carnings per share ("") .shares grew more than earnings then declines PEEP, where is price per share ON m 25