Exhibit 12.1 Use the Information Below for the Following Problem(S)

question 96

Multiple Choice

Exhibit 12.1
Use the Information Below for the Following Problem(S)
Assume that the dividend payout ratio will be 65 percent when the rate on long-term government bonds falls to 8 percent. Since investors are becoming more risk averse, the equity risk premium will rise to 7 percent and investors will require a 15 percent return. The return on equity will be 12 percent.
-Refer to Exhibit 12.1.What is your expectation of the market P/E ratio?

• A) 8.33
• B) 5.33
• C) 9.03
• D) 6.02
• E) 3.24

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Definitions:

U.S. Dollar

The official currency of the United States, often used as the global standard for financial transactions.

Higher Inflation

A situation where the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling, is greater than what is deemed normal or acceptable.

Canadian Dollar

The official currency of Canada, often symbolized as CAD or simply $ when discussing Canadian funds.

U.S. Dollar

The recognized money of the United States, extensively utilized as a standard and reserve currency globally.