Gerome Grant was asked to serve as a panelist at an investment seminar for a local college’s finance club. During the panel session, Grant was asked whether the following comments were correct or incorrect. Comment 1: The PEG ratio is a useful valuation model for all types of equities, regardless of the expected dividend growth rate. Comment 2: A 10-year moving average is a meaningful historic benchmark when performing equity valuation Comment 3: Due to the averaging process involved when using a multi-metric valuation procedure, the correlation among the metrics is irrelevant. Which of the following represents Grant’s most appropriate response? Comment 1 Comment 2 Comment 3 A) Correct Correct Incorrect B) Incorrect Correct Incorrect C) Incorrect Incorrect Incorrect D) Incorrect Incorrect Correct Your answer: A was incorrect. The correct answer was B) Incorrect Correct Incorrect Comment 1 is incorrect. Companies with zero expected growth have a PEG ratio that is undefined (division by zero), and companies with negative growth have a negative PEG ratio, which renders it meaningless. Therefore, PEG ratios are only useful for companies with normal or high earnings growth. Comment 3 is incorrect. When using a multi-metric valuation procedure, it is important that the correlation coefficients be positive so that the various metrics will tend to indicate the same over or under valuation signal. This will provide the analyst with a degree of confidence in the interpretation of each stock’s overall average score. - Why should we consider dividend growth rate - shouldnt we be considering earnings growth rate in comment 1 ? thanks in advance…
Comment1: PEG does not work good for -ve, 0, low, low DIV paying companies Comment2: 10-year moving average --> is the most suitable historic benchmark Comment3: GS Matrix - correlation must be +ve, so as to give the same conclusion from all sides of the matrix PEG = PE/g if g = 0 PEG = undeterministic
G is dividend growth rate. when dividend growth rate is either zero or negative, PEG ratio is not useful.
does this constitute a k-type question?
thank you all for your responses… I had got confused ! 
btw what is a k type question?