Question: On January 31, 2005, National Growth Properties, a major shopping mall REIT, was trading at a share price of $28.50, at which price its then-current (year-2005) annual dividend of $2.04/share provided a yield of 7.2%. At that time, several analysts who followed National Growth closely were predicting future growth in earnings at a rate of nearly 10% per year for the subsequent five years, although same-store rental growth during the preceding year had been only 5.3%.

a. If the analysts' earnings growth rate expectations accurately reflected the stock market's long-run average growth expectations for National Growth's dividends as of January 31, 2005, then, based on the GGM, what was the stock market's implied long-run average required expected rate of total return for investment in National Growth equity?

b. If the market's long-run growth expectations were better reflected by the previous year's same-store rental growth rate, what was the market's required total expected return?

c. With the 5.3% growth expectation assumption of question (b), what is the market's implied required ex ante risk premium for National Growth equity, given that T-bills were yielding about 5.5% at that time?

d. If the required total return expectation you calculated in question (b) was indeed the market's required return for National Growth, but the most accurate long-term dividend growth rate expectation for National Growth was actually halfway between the 5.3% same-store rental growth rate and the analysts' 10% earnings growth rate prediction, then what was the extent of the market's ‘‘underpricing'' of National Growth stock on January 31, 2005?