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Exercise

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.

Instructions

100 XP
  • Calculate the implied P/B multiple.
  • Calculate the implied price for the subject firm.