Here, I show some detailed sums for UK equities for the 11 years from 1982 through 1993 (they are shown here for bonds as well).
MVR This is derived from the11th root of the two TRIs, which were 11,321.82 (1982) and 80,376.36 (1993), giving an average return of 19.50% pa across the whole period.
DVR This needs assumptions for period held, for dividend growth and capital growth. In all cases, I have assumed 15 years and that 40% of the return from dividends and capital will both stem from growth. This is lower than the 50% that used to be typical. Suppose that the gross DVR is 10% pa, in which case the net discount rate is 6% pa.
For 1982, the dividend yield was 5.26%, leading to a capital value of 10,508.11. For 1993, the dividend yield was 3.37%, leading to a capital value of 59,845.66 (see spreadsheet). As the first capital value increased by 10% pa for 11 years does not equal the second figure, we know that the result is not 10% pa. The true result was 16.76% pa.
