ayaz_mahmud369

I think the posts here are making this too simplistic for the point of the level 2 exam which is valuation. In a static environment, P/B says that at this moment, the liquidiation value of assets are B and you are paying P for them. Relating price in a static environment is not realistic with a going concern company/asset as it doesnt take into account future cash flows. Would you make the same assumption for the price of 2 bonds with par value of 1000? No you would look at the coupons and time left to maturity. I think this is more comparable than "you want to pay less". Now if you have 2 companies with the same ROE and R then the higher P/B would be overpriced. But if one company has ROE 2X r then that one should have a higher P/B and it isnt overpriced.