You are an analyst, it's your first day on the job and you want to perform...

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You are an analyst, it's your first day on the job and you want to perform well for your new employer. You are analysing some economic data and realise that inflation is going down, you expect interest rates to go down by a lot, stock market analysts are expecting volatility in stocks' prices. You have done your research on the retail sector and are asked by your boss to analyse 3 stocks to buy. You have to use the P/E ratio valuation method. Your boss says "we can also invest in bonds if stocks do not meet your criteria, which is lower P/E ratio than industry average. You decide" You gather the following data: Retail sector average P/E: 25 Company A P/E: 12 - Company B P/E: 25 - Company C P/E: 75 The following bonds are available to be purchased on the market: 30yr, 5% coupon bond - 1yr, 2% coupon bond - 30yr 0 (zero) coupon bond. Where do you invest? Why? You are an analyst, it's your first day on the job and you want to perform well for your new employer. You are analysing some economic data and realise that inflation is going down, you expect interest rates to go down by a lot, stock market analysts are expecting volatility in stocks' prices. You have done your research on the retail sector and are asked by your boss to analyse 3 stocks to buy. You have to use the P/E ratio valuation method. Your boss says "we can also invest in bonds if stocks do not meet your criteria, which is lower P/E ratio than industry average. You decide" You gather the following data: Retail sector average P/E: 25 Company A P/E: 12 - Company B P/E: 25 - Company C P/E: 75 The following bonds are available to be purchased on the market: 30yr, 5% coupon bond - 1yr, 2% coupon bond - 30yr 0 (zero) coupon bond. Where do you invest? Why?

Answer rating: 100% (QA)

Based on the PE ratios provided Company A seems to be undervalued relative to the industry average w... View the full answer