What components are included in the Grinold-Kroner Model formula?

The Grinold-Kroner Model is a framework used to estimate the expected returns on equity investments. The model incorporates several key components that influence returns over time, including dividend yield, changes in shares outstanding, and the earnings growth rate.

The dividend yield represents the income generated from dividends relative to the stock's price and reflects the portion of return that comes from regular payouts to shareholders. The change in shares outstanding is significant because it accounts for any dilution or accretion of ownership, which can impact per-share earnings and thereby affect overall returns. Lastly, the earnings growth rate is crucial as it indicates how fast a company is expected to grow its profits over time, contributing to capital appreciation.

By integrating these elements, the Grinold-Kroner Model provides a comprehensive view of the expected return on equity investments, emphasizing both income and growth potential.

In contrast, the other options either omit critical elements or include irrelevant factors that do not align with the Grinold-Kroner Model's components. For instance, options that only include volatility, inflation, or risk premiums do not capture the full essence of the expected return as articulated by the model.