Question
We discussed, in class, how the inverse of the Price/EPS (earnings per share) ratio is the return investors receive for investing in individual companies. For
We discussed, in class, how the inverse of the "Price/EPS (earnings per share) ratio is the return investors receive for investing in individual companies. For instance, AAPL has a Price/EPS ratio of 16.9. Its inverse (1 / 16.9) is 0.0591716 which is about 5.92% return. This is the return investors receive in terms of Earnings-per-Share in AAPL investments. Currently, S&P-500 stocks has an average return of 4.95%. This is the average inverse P/E for the entire S&P-500 index companies. We also discussed how different investment choices are comparable in terms of their risk-return trade-offs. In another words, investors can easily move their investments from stocks to bonds and vice-versa based on the return they earn on them. Please show your work. You can find S&P-500 stocks' key statistics under Course Material If FED increases interest rates by 0.5% for overall bonds market, in order to keep investors invested in stocks, how much would stocks prices have to increase/decrease in general? If FED increases interest rates by 0.5% for overall bonds market, in order to keep investors invested in stocks, how much would your assigned company's stock price have to increase/decrease in general?
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