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Basic Question 2 of 4

A justified price multiple is a price multiple at which the stock

A. has traded for the past 4 quarters.
B. should be fairly valued based on the method of comparable or forecasted fundamentals.
C. is expected to trade for the next 4 quarters.

User Contributed Comments 3

User Comment
farhan92 A =Trailing
B= Leading
fabsan wrong C = leading/ since A and C are contracdictory, B should be right
khalifa92 Common criticism is multiples don't consider the future,
counter criticism by forecasting the variables;
justified price is extracted from forecasted fundamentals.
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!


Learning Outcome Statements

contrast the method of comparables and the method based on forecasted fundamentals as approaches to using price multiples in valuation, and explain economic rationales for each approach;

calculate and interpret a justified price multiple;

describe rationales for and possible drawbacks to using alternative price multiples and dividend yield in valuation;

CFA® 2024 Level II Curriculum, Volume 4, Module 25.