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- This topic has 11 replies, 4 voices, and was last updated 8 years ago by John Moffat.
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- November 23, 2014 at 11:27 am #212370
Hallo sir kindly assist
X plc has a dividend yield of 8% and dividend cover of 2,4 What is the Price ratio for XplcNovember 23, 2014 at 11:40 am #212380PE ratio = MV / EPS
Dividend yield = D/MV = 0.08. So MV/D = 1/0.08 = 12.5
Dividend cover = EPS / D = 2.4. So D/EPS = 1/2.4
PE ratio = MV/eps = MV/D x D/EPS = 12.5 x 1/2.4 = 5.21
September 6, 2015 at 3:13 pm #270086Dear sir why do we use the 1? Like 1 / 0.08 or 1/2.4? Where does 1 come from?
September 6, 2015 at 5:16 pm #270103This is actually rather basic arithmetic!
If D / MV = 0.08, then inverting both sides gives MV / D = 1 / 0.08.
If you are not happy with that then:
D / MV = 0.08
Multiply both side by MV:
D = 0.08 x MV
Divide both sides by D:
1 = 0.08 x MV / D
Divide both sides by 0.08:
1 / 0.08 = MV / DSeptember 6, 2015 at 10:50 pm #270136Oh that makes perfect sense now. 🙂 Thank you so much spending your weekend to answer this. Appreciate it.
September 7, 2015 at 8:28 am #270164You are welcome 🙂
September 8, 2015 at 3:28 pm #270437Its can be solved by an equation
PE ratio * Divident Yield= (1/Divident Cover)
September 8, 2015 at 4:31 pm #270455Obviously it can!!
But why learn extra equations when there is no need. This has only been asked once in the exam. Other times he asks different things which would need inventing a different equation. He is deliberately testing that you understand what the basic measures are – not that you can learn equations.
September 8, 2015 at 6:11 pm #270493Sir there are no tips for sep 2015 exams i have studied alot and covered all areas but what do you think could be tested this time? I mean risk, Value for money, payback, ARR not been tested for ages.
September 8, 2015 at 7:20 pm #270514You can find tips from BPP etc elsewhere on this website.
Because of the multiple choice questions it is impossible to give meaningful tips.
(Risk has been examined in virtually every exam. Value for money, payback and ARR are only really ever likely to be examined in Section A.)
September 8, 2015 at 8:29 pm #270526Thank you Sir. Last sitting Risk FRA was heavily examined and Forward rate .Money market. Nice easy 10 marks but sadly I did not do the exam. Something like that would be nice but then again examiner does not repeat things straight away. I am surprised WACC calculation was not tested this is usually in every exam, I highly expect a WACC question this time.
September 9, 2015 at 7:33 am #270568You may be right 🙂
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