1.You are considering buying four stocks. You want to buy the one that trades most below its fair
P0/B0. Given the data below if you can just buy one stock which one should you buy?
Long-term Growth Rate
Cost of Equity Capital
Hint: You should buy the one where the P0/B0 is furthest below what the P/B should be (the fair P/B). For instance if
the fair P/B is 10% higher than P0/B0 then the stock should rise 10% as it moves to fair value (P rises while B is unchanged so the P/B
ratio rises). Stock investors frequently analyze the P/B ratio to determine whether or not to buy a security.