Implied Price Using Regression
The relationship between ROE and P/B summarized by the regression can also be used to imply the relevant P/B multiple for our subject firm and, consequently, an implied price. Assume that the subject firm ROE is 20% and its BVPS is $8. Recall that the regression intercept term and beta are stored as a
and b
, respectively. Using this information, calculate the implied price using the relation between ROE and P/B.
This exercise is part of the course
Equity Valuation in R
Exercise instructions
- Calculate the implied P/B multiple.
- Calculate the implied price for the subject firm.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
# Calculate implied P/B
implied_p_b <- ___
implied_p_b
# Calculate implied price
implied_price <- ___
implied_price