4.As an analyst for Charlotte and Chelle Capital, you are forecasting the market P/E ratio using the dividend discount model. Because the economy has been expanding for nine years, you expect the dividendpayout ratio will be at its low of 40percent and that long term government bond rates will rise to 7 percent. Because investors are becoming less risk averse, the equity risk premium will decline to 3 percent. As a result, investors will require a 10 percent return, and the return on equity will be 12 percent.

a. What is the expected growth rate?

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b. What is your expectation of the market P/E ratio?

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