How to calculate Expected Return?

CFA Level II Equities
#1

Hey guys,

Can you please help me understand this? I don’t know if I’ve understood the case study wrongly or if there are inconsistencies with the calculation provided. (from the 2020 textbook)

On page 55,

P0 = 129.97, V0 = 176.3, r = 6.3%

Solution given: Expected Return = [(176.3 - 129.97)/129.97] + 6.3% = 44.07% ---- (Price Appreciation + r)

On page 56,

P0 = 33.31, V0 = 37.5, Dividend = 0.96, r = 7%

Solution given: Expected Return = (0.96/33.31) + [(37.5 - 33.31)/33.31) = 15.5% ---- (Dividend Yield + Price Appreciation)

Why didn’t they add in the r for the latter example?

Thank you in advanced!

#2

I haven’t got the 2020 curriculum yet. Are you sure that the second example isn’t a realized return?

#3

A very common reocurring theme every time I thought the curriculum had a mistake in it, was to re-read it until I actually understood it.

There likely is a reason why it wasn’t included.

#4

Expected Return = (0.96/33.31) + [(37.5 - 33.31)/33.31) = 15.5% —- (Dividend Yield + Price Appreciation)

In my opinion, Dividend yield is not for forecast (D0 *( 1+ growth rate)) therefore growth rate ® is subtracted from above formula.