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Qa6. An investor currently holds a szsmaion equity portfolio. Heisconsiderine ebalandne the portfolio based on...

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Qa6. An investor currently holds a szsmaion equity portfolio. Heisconsiderine ebalandne the portfolio based on an of the risk and return prospects facing the US. to the US investment markets and the economy has been conected in the following table: 10year Historical CapMal Market Expectation 10yr avg, govt bond yield 10-yr govt. bond yield 6.0%, Avg annual equity return Year-over-year equity return 8.8% Expected annual inflation Avg annual inflation rate year-over-year inflation rate 2.0% 2.7% market P/E Expected equity Current equity market P/E Equity Market P/E 16.0X 14.0X al income ret. Expected annu Avg annual income return 2.596 Expected annual real Avg. annual real earnings growth earnings growth: 6.0% Using the information in the table, address the following problems: a) Calculate the historical equity risk premium using the bond-yield-plus risk-premium US. b) Calculate the expected annual equity return using the Grinold-Kroner model (assume 19% decline the number of shares outstanding). premium. c) Using your answer to Part b, calculate the expected annual equity risk

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