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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
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 40 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 12 percent.
- What is the expected growth rate? Round your answer to one decimal place.
%
- What is your expectation of the market P/E ratio? Do not round intermediate calculations. Round your answer to two decimal places.
x
- What will be the value for the market index if the expectation is for earnings per share of $90? Do not round intermediate calculations. Round your answer to the nearest dollar.
$
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