CFA Practice Question

There are 96 practice questions for this study session.

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 justified leading P/E ratio for ABC?

A. 5.36.
B. 5.63.
C. 9.38.
Correct Answer: C

Leading P/E = P0/E1 = (D1/E1)/(r-g) = (1 - 0.4)/(0.112 - 0.048) = 9.38.

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