The below figure gives the daily price movement of Microsoft and Apple around the 2012 launch announcements of the Surface Tablet and the iPad 2. The launch days are identified using the vertical dashed lines in the middle of each graph. The timeline covers about 4 months before and 3 months after the respective launch days.

At the end of the financial quarter prior the announcements of the tablet computers, the Price-to-Earnings (PE) ratio of Apple was 38 and the PE ratio of Microsoft was 53.

At the end of the quarter after the product announcement the PE ratio of Apple was 61 and the PE ratio of Microsoft was 56.

(a) As a financial analyst that follows Microsoft and Apple and assuming that no other significant events took place during this 7-month period then, explain your approach on how you can estimate the change in the stock price should move on the day of the announcement? How can you estimate the price differential that is specifically due to this product announcement?

(b) Describe the change in PE ratios between the quarter prior and the quarter after the announcement. What does the movement in PE ratios suggests for each company? Also, explain what drives the PE differentials between Microsoft and Apple why are they so different between the two companies?

Microsoft anounces the Surface Apple anounces the iPad 00 0 Pree 50 Price 4000 ..50 18/2/2012 announcement 12/9/2012 7/11/2011 announcement 7/6/2012 Microsoft anounces the Surface Apple anounces the iPad 00 0 Pree 50 Price 4000 ..50 18/2/2012 announcement 12/9/2012 7/11/2011 announcement 7/6/2012