- CFA Exams
- CFA Level I Exam
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation
- Subject 5. Gordon growth model and the P/E ratio

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**CFA Practice Question**

ABC Corp. has a retention ratio of 40% and a long term growth rate of 4.8%. If the required rate of return for this stock is 11.2%, what is the trailing P/E ratio for ABC?

A. 5.36

B. 9.38

C. 9.83

**Explanation:**Trailing P/E = P

_{0}/E

_{0}= [(1-b)(1+g)]/(r-g) = [(1 - 0.4)(1+0.048)]/(0.112 - 0.048) = 9.83.

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