Choice "B" is correct. The PEG ratio is the ratio of the P/E ratio to the anticipated growth rate. In this case, we would express the PEG ratio as follows:
PEG | = | (P0 / E0) / (G × 100) |
1.25 | = | ($15 / $3) / (G × 100) |
1.25 | = | 5 / (G × 100) |
G × 125 | = | 5 |
G | = | 5 / 125 |
G | = | 4% |
Choice "d" is incorrect. The analyst's growth rate is not the PEG -1.
Choice "c" is incorrect. The analyst's growth rate is not the earnings / price ratio (3/15).
Choice "a" is incorrect. The analyst's growth rate is not the P/E ratio divided by 100.
