XYZ is trading at 20 times trailing earnings. The trailing earnings are $1.00 per share. If XYZ’s return on equity is 10%, what is the price to book value for XYZ? A. 2x B. 20x C. 10x D. 4x

C

price = $20 NI/Equity = 0.1 equity=10 20/10=2x A)

A

Good supershooter…a bit tricky, but you got it.

Where can I read how to do this problem? I guess in one of those 50 readings that i’ve skipped.

introduction to price multiples in the equities & fixed income book

> Where can I read how to do this problem? I guess in one of those 50 readings that i’ve skipped. There are 76 readings in total:-)

If you just memorize all those ratios, you can do this question easily. It is just algebra.

memorizing has always been my weakness. I am more of common sense person, but i’ve heard this exam is opposite of common sense, so a lot of times i am going to be choosing answers against my instinct.

> If you just memorize all those ratios, you can do this question easily. It is just algebra. It took me 3 minutes to figure it out, but I didn’t remember any formulas…only tried to make sense out of it, which is the better way to do it, but you have to be fast!

Just know ROE equation, P/E and P/B breakdown.

If you have trouble memorizing formulas take a look at sharpshooters solution.