Question

Question 19 of 20 1 Points Based on the PEG ratio, which of the following is the most attractive for a growth investor? A. P/E ratio-20: growth(g)=35% B. P/E ratio=40: growthtg)=35% C. P/E ratio=20: growth(g)=25% D. P/E ratio=40: growth(8)=25% Reset Selection Mark for Review What's This

Answer 1

A. P/E=20, growth(g) =35%  is most attractive to growth investor.

Price earning to growth (PEG) is ratio of P/E ratio and EPS growth rate in future. Normally, A growth investor prefers a stock with lowest PEG ratio. A stock having PEG ratio below 1 is considered as under valued.

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A B C D w Na PEG ratio 0.57 A B P/E ratio G rowth rate 35% 40 35% 201 25% 40 25% 1.14 6 D 0.80 1.60 o v

Cell reference -

AB Nm P/E ratio Growth rate 20 0.35 4B 400.35 5 C 20 0.25 6 D 40 0.25 PEG ratio =B3/(C3*100) =B4/C4*100) =B5/(C5*100) =B6/(C6*100)

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.