[Anonymous]

Iota Corporation is using the PEG ratio to forecast its stock price in the coming year. The company’s PEG ratio is 4x and its current earnings per share is $10. Growth is expected to be 2.5%. What is the projected stock price?

a.

263

b.

102

c.

100

d.

256

Explanation

Choice “b” is correct. Projected stock price would be approximately $102.50, computed as follows:

(P0)

=

PEG × E1 × G

=

4 × ($10 × 1.025) × 2.5

=

4 × $10.25 × 2.5

=

$102.50

[Anonymous]

That's just the common way of adding a percentage. 🙂 To add 2.5% to something, you multiply it by 1.025. To add 5%, multiply by 1.05, etc.

[Author]

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