1. An analyst tells you that he uses price/earnings multiples, rather than discounted cash flow valuation, to value stocks, because he does not like making assumptions about fundamentals - growth, risk, and payout ratios. Is his reasoning correct?
2. Using Capital Asset Pricing Model and the information provided below, estimate the expected return on the equity of AB plc. Risk-free rate = 3.5% Long-term historic average return on market portfolio = 11% AB’s Beta = 1.25