As per Intelligent Investor Chapter 1 example
In 1965 the investor could obtain about 4½% on high-grade taxable bonds and 3¼% on good tax-free bonds. The dividend return on leading common stocks (with the DJIA at 892) was only about 3.2%. This fact, and others, suggested caution. We implied that “at normal levels of the market” the investor should be able to obtain an initial dividend return of between 3½% and 4½% on his stock purchases, to which should be added a steady increase in underlying value (and in the “normal market price”) of a representative stock list of about the same amount, giving a return from dividends and appreciation combined of about 7½% per year.
- Why at normal levels dividend expectation should be 3.5 - 4.5?
- How this dividend and appreciation adds to 7.5%?
I am trying to understand the math behind these numbers.