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Basic Question 3 of 11
A stock has a required return of 15%, a constant growth rate of 10%, and a dividend payout ratio of 45%. The stock's price-earnings ratio should be ______ times.
B. 4.5
C. 9.0
A. 3.0
B. 4.5
C. 9.0
User Contributed Comments 3
| User | Comment |
|---|---|
| katybo | P/E = payout/(r-g) |
| MasterD | payout = (1 - b) where b is retension P0 = E1 (1-b) / (r-g) The price (P0) an equity purchaser should pay is proportional to earnings (E1) payed out (1-b) to the purchaser, discounted in perpetuity by the require rate (r) less expected growth rate of such earnings (g). |
| 2014 | dpr/r-g |
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Learning Outcome Statements
explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables
calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value
CFA® 2025 Level I Curriculum, Volume 3, Module 8.