National City Corporation, a bank holding company, reported earnings per share of $2.40 in 1993, and paid dividends per share of

$1.06. The earnings had grown 7.5% a year over the prior five years, and were expected to grow 6% a year in the long term (starting in 1994).

The stock had a beta of 1.05 and traded for 10 times earnings. The Treasury bond rate was 7%, and the risk premium is 5.5%.

a. Estimate the PE ratio for National City Corporation.

b. What long-term growth rate is implied in the firm's current PE ratio?