reading 37 exercise question 3-P/B P/E calculation

CFA Level II
#1

[question removed by admin]

(Institute 529)

Institute, CFA. 2016 CFA Level II Volume 4 Equity. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

here is how I did this

P/E=(1-B)/(R-G)=0.2/(12%-9%)

P/B=p/e * E/B = P/E* return of rquity = 0.2*0.15/9%

this is the correct answer-P/B=(ROE−g)/(r−g)=1.33

while i know this is the equation for P/B but what did I do wrong?

P/B=(ROE−g)/(r−g)=(0.15−0.03)/(0.12−0.03)=0.12/0.09=1.33

#2

Provide the page.

It is better than pasting an image and getting banned.

#3

oops

reading 37, question #3

#4

bump, anyone

#5

I know this can always create a confusion, but the payout ratio is 0.8 not 0.2.

So (1-b)=0.8

#6

Your formula is correct actually.

Given P/E=(1-b)/(r-g),

We have P/B=P/E* ROE =(1-b)*ROE/(r-g)=(ROE - b*ROE)/(r-g),

since g=b*ROE, P/B =(ROE−g)/(r−g), which is the same forumula they give. As krokodilizm mentioned, you get wrong answer because you’re confusing 1-b (payout rate) with b (retention rate)