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  • 1.  Part 2 - PE Ratio

    Posted 09-07-2022 11:49 PM
    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?
    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.

  • 2.  RE: Part 2 - PE Ratio

    Posted 09-08-2022 01:43 AM
    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

    Zahid Ullah Aziz

  • 3.  RE: Part 2 - PE Ratio

    Posted 09-08-2022 02:09 AM
    Thanks I got it. 

  • 4.  RE: Part 2 - PE Ratio

    Posted 09-09-2022 12:50 AM
    Need a study buddy for part 2 examination for Jan - Feb window...

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