Answer: 6.75%

## Explanation In the single-stage residual income model, the formula for the price-to-book (P/B) ratio is: \[ \frac{P}{B} = 1 + \frac{ROE - r}{r - g} \] Where: - P/B = 3.0 - ROE = 12% = 0.12 - r (cost of equity) = 8.5% = 0.085 - g = implied growth rate (unknown) Rearranging the formula to solve for g: \[ 3.0 = 1 + \frac{0.12 - 0.085}{0.085 - g} \] \[ 2.0 = \frac{0.035}{0.085 - g} \] \[ 2.0(0.085 - g) = 0.035 \] \[ 0.17 - 2g = 0.035 \] \[ 2g = 0.17 - 0.035 \] \[ 2g = 0.135 \] \[ g = 0.0675 = 6.75\% \] Therefore, the implied growth rate is 6.75%, which corresponds to option B.

Author: LeetQuiz Editorial Team