Justified P/E ratio...

CFA Level III
#1

In Econ’s EOCs they discuss the Justified P/E ratio which = (D1/E)/(r-g)

Now we only needed to know that R was in the bottom of the equation to know that an increase in the ERP increases R, which decreases the Justified P/E raito, (Just…ha). Does this mean that we need to know other justified ratios, such as P/B, FCFE/Equity Value, etc?

#2

I do not think so. One Q though. When do we use this formula? for justified P/E ratio ?

#3

Doesn’t this EOC ask about correlation increasing which dropped the Justified P/E ration due to a higher R?

#4

Yeah, and you need to know the justified P/E ratio formula to answer that the increase in correlation decreased the justified P/E. That’s why I’m asking about the formula