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bleach

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tT
发表于 2013-4-11 10:03 | 只看该作者

Schweser justified P/B problem in residual income

why, problem, income, before
Hey guys. Can anyone explain to me why in problem #10 of study session 12 they added a 1 before the justified price to book formula.
I thought is was P/B= ROE-r/r-g.
In the problem you are asked to solve for ROE but they use P/B=1+ ROE-r/r-g.
What am I missing?

 

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ninja1024

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2#
发表于 2013-4-11 10:04 | 只看该作者
nothing
simplify, use a simple bit of algebra
and you will see that both expressions are the same
1+(ROE-R)/(R-G)
= [R-G+ROE-R]/(R-G) = (ROE-G)/(R-G)

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spartanag07

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3#
发表于 2013-4-11 10:05 | 只看该作者
I see my mistake now thanks for the help.

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BC_MBA_student

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4#
发表于 2013-4-11 10:06 | 只看该作者
Intuitively, P/B = B/B + (premium/B) = 1 + (ROE-r)/(r-g) so (premium/B) = (ROE-r)/(r-g)

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thommo77

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5#
发表于 2013-4-11 10:06 | 只看该作者
In the book I think its P0/B0, not P0/E0 ;)

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Kiakaha

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6#
发表于 2013-4-11 10:07 | 只看该作者
That may be the difference between us. I like to understand the intuition behind the equations instead of memorizing them. Thats what I was always tested on vs. plug and play.

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