ordon growth model. Rae uses the CAPM to compute the return on equity. He uses the annual yield of 4 percent on the 10-year Treasury bond as the risk-free return. He estimates the expected US equity risk premium, with the S&P 500 Index used as a proxy for the market, to be 6.5 percent per year. The estimated beta of Tasty Foods against the S&P 500 Index is 1.10. Accordingly, Rae's estimate for the required return on equity for Tasty Foods is 0.04 + 1.100.065) = 0.1115 or 11.15 percent. Using the past growth rate in dividends of 5.30 percent as his estimate of the future growth rate in dividends, Rae computes the value of Tasty Foods stock. He shows his analysis to Alex Renteria, his colleague at the pension fund who specializes in the frozen foods industry, Renteria concurs with the valuation approach used by Rae but disagrees with the future growth rate he used. Renteria believes that the stock's current price of $8.42 is the fair value of the stock. 16. Which of the following is closest to Rac's estimate of the stock's value? A $10.08. B. $10.54. C. $10.62 17. What is the stock's justified trailing P/E based on the stock's value estimated by Rae? A. 5.01. I B. 5.24. C. 5.27