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%.

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

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