A Firm Has a Share Price of $55 Per Share

question 30

Multiple Choice

A firm has a share price of $55 per share and a P/E ratio of 75. If you buy the shares at this P/E and earnings fail to grow at all, how long should you expect it to take to just recover the cost of your investment?

• A)27 years
• B)37 years
• C)55 years
• D)75 years

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Definitions:

Standard Deviation

A measure of the dispersion or variability in a set of data points, often used in finance to indicate the volatility of an investment.

Beta

An indicator of the level of fluctuation, or inherent risk, of an investment or group of investments relative to the overall market.

Dollar-Weighted Return

A method of calculating an investment's return that takes into account the timing and amount of cash flows into and out of the investment.

Time-Weighted Return

A method to measure the compound rate of growth in a portfolio, eliminating the effect of cash flows in and out of the portfolio.