# CMA Study Group

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## Part 2 - PE Ratio #### Kirti Sheth27 days ago #### Zahid Ullah Aziz27 days ago #### Kirti Sheth27 days ago • #### 1.  Part 2 - PE Ratio

Posted 27 days ago
The correct answer is B. Could someone please explain how its tied to PE ratio.
Which one of the following events will most likely result in a higher price-earnings ratio for a company's common shares?
 A. The economy is expected to enter a recession. B. Investors' required rate of return on the common shares falls. Answer (B) is correct.A decrease in investors' required rate of return will cause share prices to go up, which will result in a higher P/E ratio. C. The dividend yield increases when the dividend per share remains unchanged. D. The rate of growth in dividends is expected to decline.

• #### 2.  RE: Part 2 - PE Ratio

Posted 27 days ago
first understand what P/E ratio is made of
It is made of P= price per share that shareholders are will to pay in the market  and E= earning per share
Higher P/E ratio means shareholders are will to pay higher price compared to the earning of the company a higher PE show higher confidence when confidence is higher cost of capital is lower because shareholders are confident.
Also when calculating Market value of Share using Dividend Valuation model  assume dividen is 1 per share and cost of capital is 10% then price will equal 1/.10 =10 dollars now assume if cost of capital is 5% then pricell will become 1/.05= 20  so higher price means higher PE

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Zahid Ullah Aziz
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• #### 3.  RE: Part 2 - PE Ratio

Posted 27 days ago
Thanks I got it.

• #### 4.  RE: Part 2 - PE Ratio

Posted 26 days ago
Need a study buddy for part 2 examination for Jan - Feb window...