Exercise 7 question

Hello Ruslan,

Thanks for reaching out!

Can you please tell me which question are you referring to. The one that your screenshot is about is not about multiplying the payout ratio.

Please elaborate further. 

Best,
The 365 Team

Hello, Ivan,
I mean, to find P/E according to GGM shouldn't we use the formula p * (1 + g) / (r - g)? To find the price of a share in the numerator we need to use dividends of the first period, that is D0 * (1 + g). We divide both parts of the equation by E and get P/E on the left and p * (1 + g) on the right, don't we?

Hello Ruslan,

Thanks for reaching out!

Your logic is sound, your math is correct, and your understanding of how GGM leads to a P/E ratio is spot on. This is exactly how the model should be derived.

Best,
Ivan