You are given the three EPS estimates and the following estimates related to the market earnings multiple: Pessimistic Consensus $37.25 $44.52 0.70 0.60 0.12 0.11 0.06 0.05 0.09 0.11 One shoul✓ -Select- EPS D/E Nominal RFR Risk premium ROE a. Based on the three EPS and P/E estimates, compute the high, low, and consensus intrinsic market value for the S&P Industrials Index in 2018. Do not round intermediate calculations. Round your answers to the nearest cent. High intrinsic market value: $ Low intrinsic market value: $ Consensus intrinsic market value: $ b. Assuming that the S&P Industrials Index at the beginning of the year was priced at 2,050, compute your estimated rate of return under the three scenarios from Part a. Do not round intermediate calculations. Round your answers to one decimal place. Use a minus sign to enter negative rates of return, if any. Rate of return (optimistic scenario): Rate of return (pessimistic scenario): Rate of return (consensus scenario): Assuming your required rate of return is equal to the consensus, how would you weight the S&P Industrials Index in your global portfolio? he U.S. stocks in a global portfolio. underweight overweight % % Optimistic $60.53 0.50 0.10 0.04 0.13 %
You are given the three EPS estimates and the following estimates related to the market earnings multiple: Pessimistic Consensus $37.25 $44.52 0.70 0.60 0.12 0.11 0.06 0.05 0.09 0.11 One shoul✓ -Select- EPS D/E Nominal RFR Risk premium ROE a. Based on the three EPS and P/E estimates, compute the high, low, and consensus intrinsic market value for the S&P Industrials Index in 2018. Do not round intermediate calculations. Round your answers to the nearest cent. High intrinsic market value: $ Low intrinsic market value: $ Consensus intrinsic market value: $ b. Assuming that the S&P Industrials Index at the beginning of the year was priced at 2,050, compute your estimated rate of return under the three scenarios from Part a. Do not round intermediate calculations. Round your answers to one decimal place. Use a minus sign to enter negative rates of return, if any. Rate of return (optimistic scenario): Rate of return (pessimistic scenario): Rate of return (consensus scenario): Assuming your required rate of return is equal to the consensus, how would you weight the S&P Industrials Index in your global portfolio? he U.S. stocks in a global portfolio. underweight overweight % % Optimistic $60.53 0.50 0.10 0.04 0.13 %
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
Related questions
Question
![You are given the three EPS estimates and the following estimates related to the market earnings multiple:
| | Pessimistic | Consensus | Optimistic |
|-------------------------|-------------|-----------|------------|
| **EPS** | $37.25 | $44.52 | $60.53 |
| **D/E** | 0.70 | 0.60 | 0.50 |
| **Nominal RFR** | 0.12 | 0.11 | 0.10 |
| **Risk premium** | 0.06 | 0.05 | 0.04 |
| **ROE** | 0.09 | 0.11 | 0.13 |
**a.** Based on the three **EPS** and **P/E** estimates, compute the high, low, and consensus intrinsic market value for the S&P Industrials Index in 2018. Do not round intermediate calculations. Round your answers to the nearest cent.
- High intrinsic market value: $[__________]
- Low intrinsic market value: $[__________]
- Consensus intrinsic market value: $[__________]
**b.** Assuming that the S&P Industrials Index at the beginning of the year was priced at 2,050, compute your estimated rate of return under the three scenarios from Part a. Do not round intermediate calculations. Round your answers to one decimal place. Use a minus sign to enter negative rates of return, if any.
- Rate of return (optimistic scenario): [__________] %
- Rate of return (pessimistic scenario): [__________] %
- Rate of return (consensus scenario): [__________] %
Assuming your required rate of return is equal to the consensus, how would you weight the S&P Industrials Index in your global portfolio?
- One should [□ Select - underweight / overweight] the U.S. stocks in a global portfolio.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd775b0dd-ca31-4375-9d54-690ef122e342%2Fb732dc3d-6c35-4ff4-8292-089278c3dc49%2Fn9agji3_processed.png&w=3840&q=75)
Transcribed Image Text:You are given the three EPS estimates and the following estimates related to the market earnings multiple:
| | Pessimistic | Consensus | Optimistic |
|-------------------------|-------------|-----------|------------|
| **EPS** | $37.25 | $44.52 | $60.53 |
| **D/E** | 0.70 | 0.60 | 0.50 |
| **Nominal RFR** | 0.12 | 0.11 | 0.10 |
| **Risk premium** | 0.06 | 0.05 | 0.04 |
| **ROE** | 0.09 | 0.11 | 0.13 |
**a.** Based on the three **EPS** and **P/E** estimates, compute the high, low, and consensus intrinsic market value for the S&P Industrials Index in 2018. Do not round intermediate calculations. Round your answers to the nearest cent.
- High intrinsic market value: $[__________]
- Low intrinsic market value: $[__________]
- Consensus intrinsic market value: $[__________]
**b.** Assuming that the S&P Industrials Index at the beginning of the year was priced at 2,050, compute your estimated rate of return under the three scenarios from Part a. Do not round intermediate calculations. Round your answers to one decimal place. Use a minus sign to enter negative rates of return, if any.
- Rate of return (optimistic scenario): [__________] %
- Rate of return (pessimistic scenario): [__________] %
- Rate of return (consensus scenario): [__________] %
Assuming your required rate of return is equal to the consensus, how would you weight the S&P Industrials Index in your global portfolio?
- One should [□ Select - underweight / overweight] the U.S. stocks in a global portfolio.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education