A firm has an earnings retention ratio of 40%. The shares have a market capitalisation rate of 15% and an ROE of 18%. What is the share's P/E ratio?

Name: A firm has an earnings retention ratio of 40%. The shares have a market capitalisation rate of 15% and an ROE of 18%. What is the share's P/E ratio?
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Question

Quizplus · Accepted Answer

P/E Ratio = (Market Capitalization Rate / ROE) x (1 - Earnings Retention Ratio)
P/E Ratio = (0.15 / 0.18) x (1 - 0.4) = 0.8333 = 7.69 (approx.) 
Therefore, the answer is B.

A Firm Has an Earnings Retention Ratio of 40