Fin 550 week 7 HOMEWORK -RUSH

Jobaids14-6and75.xlsx

14-6 Job aid

Lauren Entertainment growth rate:				0.18
Market growth rate:				0.08
Market Multiple				18
The question is for the P/E ratio given:
Duration in years:				10
Duration in years:				5
ln (x) = 10 * ln [(1.18/1.08)]
ln (x) =	10	ln (1.09259)
ln (x) =	10	0.0885510245
ln (x) =	0.8855102446
To get the 'X', you have to do the inverse of the log of .8851.
This is done by using the 'exp' function in excel. Get the 'exp'
function in excel, and your number that you input would be
.8851. The result will be:			2.423226702
Now that you have X, which is 2.42, you can find the P/E
ratio by multiplying the market multiple times the X of
2.42.
P/E	43.6180806367
Repeat this process for the duration of 5 years.
Some of you will get slightly different results, depending
upon rounding, but don't worry about that.

	Company A	Company B	S&P
P/E ratio	30	27	18
Expected growth rate	0.18	0.15	0.07
Dividend Yield	0	0.01	0.02
This question is asking you to compute the growth duration of each stock
relative to that of the S&P. To complete this, you will use equation 14.31.
Lets do Company A to begin with. The formula will be as follows:
ln (30/18) = T * ln [(1+.18+.00)/(1+.07+.02)]
You are solving for T.
Working through the equation, you get:
ln (1.667) = T * ln (1.08257)
0.5110256038	equals T *	0.0793378439
T =	6.4411329884