CHAPTER 12 PROBLEM 8

FINANCE  Investment Analysis and Portfolio Management CHAPTER 12 PROBLEM 8
 Given   the   three   EPS   estimates   in   Problem   7.you   are   also   given   the   following   estimates   related to the market earnings multiple:   
 Pessimistic; Consensus; Optimistic
   D/E---0.65; 0.55; 0.45
  Nominal RFR---0.10; 0.09; 0.08 
  Risk premium---0.05; 0.04; 0.03 
  ROE----0.10; 0.13; 0.16
 a.   Based   on   the   three   EPS   and   P/E   estimates,   compute   the   high,   low,   and   consensus   intrinsic market value for the S&P Industrials Index in 2007  ．
 b.   Assuming   that   the   S&P   Industrials   Index   at   the   beginning   of   the   year   was   priced   at   1,600,   compute   your   estimated   rate   of   return   under   the   three   scenarios   from   Part   a.   Assuming your required rate of return is equal to the consensus, how would you weight the   S&P Industrials Index in your global portfolio?

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