justified P/B multiple

CFA Level II
#1

i just don’t get how i get from P/B ratio to justified P/B ratio = (ROE-g)/(r-g) having this information: g= ROE*b E1= B0 * ROE

#2

P = D / (r-g) P/B = D/B / (r-g) P/B = D*ROE/E / (r-g) P/B = (1-b)*ROE / r-g P/B = ROE - ROE*b / r-g P/B = ROE - g / r-g

#3

Perfect. Thank you

#4

:slight_smile: thank you! :slight_smile: