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Plot P/B vs. ROE

Now that you have calculated the ROE and P/B multiples for the midcap Consumer Discretionary firms, we can now plot the P/B multiple (y-axis) vs. ROE (x-axis). We then add a trendline to the plot to visually demonstrate the trend, if any, between the two variables. The data for roe and p_bv are in the cons_disc dataset.

This exercise is part of the course

Equity Valuation in R

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Exercise instructions

  • Set the x-axis range to make sure the entire range of ROE values are covered using min() and max().
  • Set the y-axis range to make sure the entire range of P/B values are covered using min() and max().
  • Plot the P/B vs. ROE data and label the x-axis "Return on Equity" and y-axis "Price-to-Book".
  • Add a trendline using the regression model using abline().

Hands-on interactive exercise

Have a go at this exercise by completing this sample code.

# Set x-axis range
x.range <- c(___(cons_disc$roe), 
             ___(cons_disc$roe))

# Set y-axis range
y.range <- c(___(cons_disc$p_bv), 
             ___(cons_disc$p_bv))

# Plot data
plot(y = ___,
     x = ___,
     xlab = "___",
     ylab = "___",
     xlim = x.range,
     ylim = y.range,
     col = "blue",
     main = "Price-to-Book Value and Return on Equity
     Of Mid-Cap Consumer Discretionary Firms")

# Regress roe on p_bv
reg <- lm(p_bv ~ roe, data = cons_disc)

# Add trend line in red
___(___, col = "red")
Edit and Run Code