I can do these in my sleep by this point, but in question 19, pg. 538 reading 49 of the CFAI equity book, they use the formula 1 + (ROE-r)/(r-g) since when are we adding one, or did I miss something completely?
justified p/b is roe-g/r-g, isn’t it?
yeah, that is what I am saying. I calculated it and got the “correct” answer, but the CFAI answer says we add one. i’d post the question, but I am not sure that is kosher.
so i think that formula they used works.
they have roe-r, not roe-g, though. or is that a typo?
(ROE - g) / (r - g) - that’s the usual formula .20 - .06 / .094 - .06 = 4.12 The other formula works too.
i’m an idiot. it was finding justified P/B using the RI model. so it makes sense now. no typo.
thanks mcleod. its late. time to hang em up for the night.
Yea, they are the same thing. So whichever one is easier to remember for you…