The dividend payout ratio for the aggregate market is 55 percent, the required rate of return is 15 percent, and the expected growth rate for dividends is 7 percent. Compute the current earnings multiple.

Question

Quizplus · Accepted Answer

The current earnings multiple (P/E ratio) can be calculated using the dividend discount model as:

P/E Ratio = (Dividend Payout Ratio / Required Rate of Return - Expected Growth Rate)

Substituting the given values, we get:

P/E Ratio = (0.55 / 0.15 - 0.07) = 6.88

Therefore, the current earnings multiple is 6.88.

The Dividend Payout Ratio for the Aggregate Market Is 55