Consider a firm with a forward-looking P/E ratio of 4, a discount rate R=10% and ROE=5%. Suppose the price is equal to the fundamental value given by the DDM. What is the plowback ratio b of the firm? b=_ (answer a number between 0 and 1 with 2 decimals, e.g., 0.12)

Consider a firm with a forward-looking P/E ratio of 4, a discount rate R=10% and ROE=5%. Suppose the price is equal to the fundamental value given by the DDM. What is the plowback ratio b of the firm? b=_ (answer a number between 0 and 1 with 2 decimals, e.g., 0.12)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Consider a firm with a forward-looking P/E ratio of 4, a discount rate R=10% and ROE=5%.
Suppose the price is equal to the fundamental value given by the DDM. What is the plowback
ratio b of the firm? b=_ (answer a number between 0 and 1 with 2 decimals, e.g., 0.12)

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