reading 37 exercise question 3-P/B P/E calculation

[h21]

[question removed by admin]
(Institute 529)
Institute, CFA. 2016 CFA Level II Volume 4 Equity. CFA Institute, 07/2015. VitalBook file.
The citation provided is a guideline. Please check each citation for accuracy before use.
here is how I did this
P/E=(1-B)/(R-G)=0.2/(12%-9%)
P/B=p/e * E/B = P/E* return of rquity = 0.2*0.15/9%
this is the correct answer-P/B=(ROE−g)/(r−g)=1.33
while i know this is the equation for P/B but what did I do wrong?
P/B=(ROE−g)/(r−g)=(0.15−0.03)/(0.12−0.03)=0.12/0.09=1.33

 

[Harrogath]

Provide the page.
It is better than pasting an image and getting banned.

 

[h21]

oops
reading 37, question #3

 

[h21]

bump, anyone

 

[krokodilizm]

I know this can always create a confusion, but the payout ratio is 0.8 not 0.2.
So (1-b)=0.8

 

[MissSongJ]

Your formula is correct actually.
Given P/E=(1-b)/(r-g),
We have P/B=P/E* ROE =(1-b)*ROE/(r-g)=(ROE - b*ROE)/(r-g),
since g=b*ROE, P/B =(ROE−g)/(r−g), which is the same forumula they give. As krokodilizm mentioned, you get wrong answer because you’re confusing 1-b (payout rate) with b (retention rate)