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C. According to your inputs, what is the company's P/E ratio? If the market P/E is 8, do your calculations suggest that stock is under- or over- priced? (Use the original data from the set-up, not from part B)

C. According to your inputs, what is the company's P/E ratio? If the market P/E is 8, do your calculations suggest that stock is under- or over- priced? (Use the original data from the set-up, not from part B)

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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C. According to your inputs, what is the company's P/E ratio? If the market P/E is 8, do your calculations suggest that stock is under- or over- priced? (Use the original data from the set-up, not from part B)
Transcribed Image Text:C. According to your inputs, what is the company's P/E ratio? If the market P/E is 8, do your calculations suggest that stock is under- or over- priced? (Use the original data from the set-up, not from part B)
Suppose that the rate of return on the market portfolio is 8% and the risk-free rate is 1%. Con- sider a stock with B = 1.3. The firm is expected to have no earnings in the first year (E1 = 0), and then $10 earnings-per-share in the second year (E2 = 10). After that, earnings are expected to grow at a constant annual rate of 8%. The retention ratio is 80% in all periods.
Transcribed Image Text:Suppose that the rate of return on the market portfolio is 8% and the risk-free rate is 1%. Con- sider a stock with B = 1.3. The firm is expected to have no earnings in the first year (E1 = 0), and then $10 earnings-per-share in the second year (E2 = 10). After that, earnings are expected to grow at a constant annual rate of 8%. The retention ratio is 80% in all periods.
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