CFA Level I · CFA Level I Exam · Equity Analyst Research Reports
An analyst's report forecasts next year's earnings per share of €2.40 and applies a target P/E of 15 to estimate a 12-month price target. The stock trades at €32.00. The expected price return to the target is closest to:
The expected price return is about 12.5%. The target price is €2.40 × 15 = €36.00, and dividing by the current price of €32.00 gives 1.125, an increase of 12.5%.
- A8.1%
- B12.5%Correct
- C15.0%
Explanation
Target price = 2.40 × 15 = €36.00. Expected price return = 36.00/32.00 − 1 = 12.5%. The 8.1% figure is not tied to any step; 15.0% simply reuses the multiple.
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