CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

An analyst gathers the following data about a company in order to estimate its price-earnings (P/E) ratio.

Expected dividend payout ratio: 40%
Return on equity: 15%
Required rate of return: 12%
Stock's current market price: $75

The P/E ratio is closest to ______.
A. 8.7 x
B. 13.3 x
C. 15.8 x
Explanation: Growth rate = g = RR x ROE = (1 - 0.40) x 15 = 9%

P/E1 = (D1/E1) / (k - g) = 0.40 / (0.12 - 0.09) = 13.33

User Contributed Comments 0

You need to log in first to add your comment.