Question
For this exercise imagine a company that is fixed in size. Its earnings are constant and all earnings are paid out as dividends rather than
For this exercise imagine a company that is fixed in size. Its earnings are constant and all earnings are paid out as dividends rather than reinvested. Assume the companys stock price is the present value of its future dividend stream.
Investor have a 4% discount rate, what is the P/E ratio?
Lets say investor is worried about inflation and consequently apply a 10% discount rate in his decision making. What is the P/E ratio.
Will the price of the stock depend on the size of the companys earnings? In order to answer this, lets say the companys earnings are $5/share. And lets say for for the second example companys earnings are $10/share.
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