Question: A research analyst is trying to determine whether a firm s price - earnings ( PE ) and price - sales ( PS ) ratios
A research analyst is trying to determine whether a firms priceearnings PE and pricesales PS ratios can explain the firms stock performance over the past year. A PE ratio is calculated as a firms share price compared to the income or profit earned by the firm per share. Generally, a high PE ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower PE ratio. The PS ratio is calculated by dividing a firms share price by the firms revenue per share for the trailing months. In short, investors can use the PS ratio to determine how much they are paying for a dollar of the firms sales rather than a dollar of its earnings PE ratio In general, the lower the PS ratio, the more attractive the investment. The accompanying table shows a portion of the yeartodate returns Return in and the PE and PS ratios for firms.
a Estimate: Return beta beta PE beta PS epsi Negative values should be indicated by a minus sign. Round your answers to decimal places.
Predicted ReturnPEPS
c What is the predicted return for a firm with a PE ratio of and a PS ratio of Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round final answer to decimal places.
d What is the standard error of the estimate? Round your answer to decimal places.
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