in the 2009 AM exam:

Exhibit 1 U.K. Capital Market Data Historical Data (past 100 years) Equity compounded annual growth rate (%) 11.2 Equity risk premium (%) 5.3 Dividend yield (%) 4.0 Equity repurchase yield (%) –0.5 Nominal earnings growth return (%) 4.6 Current and Forward Looking Data Current equity price-to-earnings ratio 14.6 Expected equities real earnings growth rate (%) 2.7 Expected long-term inflation rate (%) 2.5 A. Determine, using the information in Exhibit 1 and the Grinold-Kroner model, the component sources of the historical nominal return for U.K. equities: i. income return ii. earnings growth iii. repricing return _____ ii. earnings growth they say is given at 4.6%. I see how this could be the case by why is it also not right to add the expected i + g = 2.7 + 2.5 = 5.2?