**Question:**Suppose a firm has a book value of owner's equity of $1,200. This is a small firm. If there are 100 shares of stock outstanding, and the firm exhibits a market-to-book ratio of ten, what is the current stock price ($P_0$)?**Options:**- $75- $12- $60- $120- $48**Explanation:**This problem involves calculating the current stock price given the book value of the owner's equity, the number of shares, and the market-to-book ratio. The market-to-book ratio is a financial valuation metric used to compare a company's current market price with its book value.**Solution:**1. Calculate the book value per share: \[ \text{Book Value per Share} = \frac{\text{Total Book Value of Equity}}{\text{Number of Shares Outstanding}} = \frac{1200}{100} = 12 \]2. Use the market-to-book ratio to find the market price per share: \[ \text{Market Price per Share} = \text{Book Value per Share} \times \text{Market-to-Book Ratio} = 12 \times 10 = 120 \]Therefore, the current stock price ($P_0$) is $120.**Correct Answer: $120**

The market price of the share can be estimated from the market to book ratio which is a relative…

Answered: Suppose a firm has a book value of…

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

Problem 1PS

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Suppose a firm has a book value of owner's equity of $1,200. This is a small firm. If there are 100 shares of stock outstanding, and the firm exhibits a market-to-book ratio of ten, what is the current stock price (Po)? O $75 O $12 O $60 O $120 $48