Investment Companies - UNF

Exercise 3. Reverse Engineering the S&P 500 Index Using Book Rates of Return (a) With a P/B ratio is 2.5, investors are paying $2.50 for every dollar of book value in the S&P 500 companies. With an ROCE of 18%, the current residual earnings on a dollar of book value is: RE0 = (0.18 – 0.10) ( 1.0 = 0.08. That is, 8 cents per dollar of book value. ................
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