How to derive justified P/B ratio.

CFA Level II
#1

I typically do not want to remember formulas. instead, i derive them on the spot during exam. since most of them are easy, it does not take long. however, i just cannot figure out this one: P/B = ROE - g / r - g. Anybody can help?

#2

trailing P/E = PR/(r-g) E = ROE*B -> P/B = P/E*E/B= (PR/(r-g))*ROE = ((1-RR)*ROE)/(r-g)=(ROE-g)/(r-g) because ROE*RR = g

#3

I see. I should have used the trailing PE, instead of the forward one. Thanks a bunch.

#4

.

#5

From my old posts… Vo = D1/ (r - g) Vo/Bo = D1/[Bo * (r-g)] E1 = B0 * ROE Bo = E1/ROE Justified PB Ratio = [D1 * ROE]/ [E1 * (r-g)] D1/E1 = DPR DPR = 1 - b D1/E1 = 1-b Justified PB Ratio = ROE*(1-b)/(r-g) = (ROE - ROE*b)/(r-g) Justified PB Ratio = (ROE - g)/(r-g)