USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 62

Multiple Choice

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 percent. Long-term government bond rates are at 6 percent, and the equity risk premium is estimated to be 3 percent. Return on equity (ROE) is estimated to be 11 percent.
-Refer to Exhibit 9.8. What is the expected growth rate?

• A) 3.00 percent
• B) 3.92 percent
• C) 4.95 percent
• D) 5.27 percent
• E) 6.05 percent

---

Definitions:

Relative Value

A measurement that assesses the worth of a good or service in comparison to other goods or services.

Stock-purchase Plans

programs that allow employees to buy shares of their company's stock, often at a discounted price, as part of their benefits.

Stock-option Plans

An employee benefit scheme that grants the right to buy company stock at a discount or a specified fixed price, often used to attract and retain employees.

Firm-level Performance

Firm-level performance is the measure of a company's performance outcomes and achievements, such as profitability, revenue growth, or market share, evaluating its success in the industry.