Question #14
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 5
Status: Incorrect
Correct Answer: A
Your Answer: B
Question
An analyst is preparing a presentation on "Interpreting PE ratios" and has the following data: Portfolio % Stock PE Stock AAA 60% 10 Stock BBB 40% 15 Which of the following is the most appropriate measure for calculating the portfolio P/E?
Answer Choices:
A. Weighted harmonic mean of the P/E’s
B. Geometric mean of the P/E’s
C. Arithmetic average of the P/E’s
Explanation
The weighted harmonic mean of the 10 and 15 will give the result closest to the portfolio
earnings divided by the portfolio value.