Using concepts from Appendix B on the accompanying CD with this book on the DDM and this chapter, answer the following questions.

(a) Derive an expression for the P/E ratio in terms of the pay out ratio k, the required rate of return on equity rce and the growth rate of earnings g.

(b) Rearrange this expression so as to obtain the implicit growth rate of earnings implied by the actual P/E ratio of the stock and other parameters.

Answer rating: 100% (QA)

a The PE ratio is calculated as the price of a share divided by the earnings per share In te... View the full answer