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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

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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
Edit and Run Code