price-to-earnings ratios problems

timer Asked: Mar 4th, 2015

Question description


forecast industry earnings retention rate= 40% 
forecast industry return on equity= 25% 
industry beta =1.2 
government bond yield= 6% 
equity risk premium =5% 

compute the price-to-earnings ratio for the industry based on this fundamental data.


forecast growth in real GDP= 5% 
government bond yield = 10% 
equity risk premium= 5% 

country B: 
forecast growth in real GDP= 2% 
government bond yield = 6% 
equity risk premium= 4% 

determine whether each of these fundamental factors would cause P/E ratios to be generally higher for Country A or higher for Country B.

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