Question

A pharmaceutical firm just issued financial statement showing last year it generated EPS at $2.6 per share. Its stock is trading at $520 in the market. Pharmaceutical industry as whole is trading at P/E of 50, is this stock overvalued, undervalued, or fair valued, based on the industry multiple alone? Fair valued Overvalued Undervalued

Answer 1

Ans1. The stock is overvalued. the reason is that P/E ratio of the company is greater than the P/E ratio of the industry.

Second option is Correct= Overvalued.

The P/E ratio of the company is= (current trading price)/EPS = 520/2.6= 200

The P/E ratio of the pharmaceuticals industry is 50.

If the P/E ratio of the company is greater then the P/E ratio of the whole industry then the stock is overvalued.

Ans2. Face value(FV)= $1000

Coupon rate(R) =6%

Bond price(PV)= $1200

term to maturity(T)= 5 years

yield to maturity(YTM)=?

Coupon payment(C)= 1000*6%= 60

semi-annually Coupon payment= 60/2 = 30

Semi-annually term to maturity= 5*2 = 10 years

(please find the photo to the ans of the question. the photo contain the solution to the answer.)

Option ONE is Correct= 0.9%

DATE: SAD C + (EU-Py YTM semi-annually 200 ) FUT PO 2 30+ 1000-1200 10 XIOD 1000 +1200 2 200 10 X100 2200 1100 -] x 100 30-20 Clloo 10 1107 0.0090 X 100 (doule X100 1001 YTM 0.90%. Aus TOPTION IN ONE IS CORRECT, ni hao Teacher's Sign