Figure 1: Decomposition of Historical Equity Returns 1926-2000

Geometric Mean = 10.70%

ERP is equity risk premium, RRF is the real risk free rate, CPI is the Consumer Price Index (inflation), INC is dividend income, RCG is real capital gain, g(P/E) is growth rate of P/E ratio, and g(EPS) is growth rate of earnings per share. The block on the top is the re-investment return plus the geometric interactions among the components. Including the geometric interactions ensures the components sums up to 10.70% in this and subsequent figures. Table 1 in the appendix gives the detailed information on the reinvestment and geometric interaction for all the methods.

¹⁷ Stock Market Returns in the Long Run

¹⁸ Stock Market Returns in the Long Run

Figure 3: Income Return (Dividend Yield) % 1926-2000

¹⁹ Stock Market Returns in the Long Run

²⁰ Stock Market Returns in the Long Run

Figure 5: Growth of $1 at the beginning of 1926 1926-2000

²¹ Stock Market Returns in the Long Run

Date: 2016-01-14; view: 714