An Analyst Has Determined That the Intrinsic Value of HPQ

question 1

Multiple Choice

An analyst has determined that the intrinsic value of HPQ stock is $20 per share using the capitalized earnings model. If the typical P/E ratio in the computer industry is 25, then it would be reasonable to assume the expected EPS of HPQ in the coming year is

• A) $3.63.
• B) $4.44.
• C) $0.80.
• D) $22.50.

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy at a specific point in time, often tracked to assess inflation or deflation.

Aggregate-Demand Curve

A line depicting the overall demand for every product and service within an economy across different price points.

Exchange Rate

The value of one currency for the purpose of conversion to another, determining the amount of one currency that can be exchanged for a unit of another currency.

Liquidity Preference Theory

A theory suggesting that people prefer to hold their wealth in liquid form for ease of transactions and as a precaution against uncertainty.