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 9 years, you expect the dividend-payout ratio will be at its low of 50 percent and that long-term government bond rates will rise to 6 percent. Because investors are becoming less risk averse, the equity risk premium will decline to 3 percent. As a result, investors will require a 9 percent return, and the return on equity will be 11 percent.

1. What is the expected growth rate? Round your answer to one decimal place.

   %

2. What is your expectation of the market P/E ratio? Do not round intermediate calculations. Round your answer to two decimal places.

   x

3. What will be the value for the market index if the expectation is for earnings per share of $85? Do not round intermediate calculations. Round your answer to the nearest dollar.