Please coment on this formula , no idea of how to get this 1/[(12/27)(1/12) + (15/27)(2/15)] = 27/3 = 9.0
An analyst is calculating the weighted harmonic mean P/E ratio of a 2-stock portfolio. Stocks AAA and BBB have prices of $12 and $15, respectively, and EPS of $1 and $2, respectively. Which of the following is the weighted harmonic mean P/E of the portfolio closest to?
A) 9.23 B) 9.75 C) 9.00
Your answer: C was correct!
The weighted harmonic mean is 1/[(12/27)(1/12) + (15/27)(2/15)] = 27/3 = 9.00 The weighted harmonic mean of the individual stocks P/Es is the best measure of the P/E for a portfolio of stocks.