Exhibit 12.8 Use the Information Below for the Following Problem(S)

Multiple Choice

Exhibit 12.8
Use the Information Below for the Following Problem(S)
As an economist for a research firm you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been slow for 5 years, you expect the dividend-payout ratio to be 55%. Long-term government bond rates are at 6% and the equity risk premium is estimated to be 3%. Return on equity (ROE) is estimated to be 11%.
-Refer to Exhibit 12.8.What is the expected growth rate?

A) 3.00%
B) 3.92%
C) 4.95%
D) 5.27%
E) 6.05%