Eagle Brand Arrowheads Has Expected Earnings of $1

question 58

Multiple Choice

Eagle Brand Arrowheads has expected earnings of $1.25 per share and a market capitalisation rate of 12%. Earnings are expected to grow at 5% per year indefinitely. The firm has a 40% plowback ratio. By how much does the firm's ROE exceed the market capitalisation rate?

• A)0.5%
• B)1.0%
• C)1.5%
• D)2.0%

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Definitions:

Variance

A measure of the dispersion or spread of a set of data points, indicating how far each data point lies from the mean.

Consistency

refers to the property of an estimator in which, as the sample size increases, it converges in probability to the parameter it estimates.

Interval Estimator

An interval estimator provides a range of values, defined by an upper and lower bound, that is likely to contain the population parameter of interest.

Sample Mean

The average of a subset of numbers from a larger set, representing the central tendency of that subset.