CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

An analyst is estimating a justified P/E multiple of a company based on its fundamentals. She gathered the following fundamental factors influencing the company's justified multiple:

  • Historical earnings retention rate: 38.0%.
  • CAPM-based required rate of return: 8.2%.
  • Expected long-term earnings growth rate: 4.5.0%.

What is the company's justified leading P/E multiple?
A. 17.51
B. 16.76
C. 16.38
Explanation: Justified leading P/E multiple = (1 - b) / (r - g) = (1 - 0.38) / (0.082 - 0.045) = 16.76.

User Contributed Comments 1

User Comment
shival Gordon model P=D1/(r-g) D1=E1*(1-b) => P/E1=(1-b)/(r-g)
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