fair value of stock B = price of stock A / (P/E of B / P/E of A) or A * (P/E of A * P/E of B)

fv B = 100/(10.0/12) = 0.83333 Wrong answer fv B = 100*(12*10) = 8333.33 Wrong answer

P/E of stock A is 12.0, P/E of stock B is 10.0. The stock A is listed and the price per share is 100 USD. The stock B is not currently traded but the Company B is applying for listing at the New York Stock Exchange. You are the underwriter of this transaction and have to identify the fair value of stock B. Use the P/E of stock A to identify the fair value of stock B. 0.83 X Incorrect fair value of stock B = price of stock A/(P/E of B/P/E of A) or A* (P/E of A* P/E of B)