Week 10 - ACCT1511 2011s2 WEEK 10 TUTORIAL HOMEWORK...

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ACCT1511 2011s2 WEEK 10 TUTORIAL HOMEWORK QUESTION FINAL EXAM, SEMESTER 1, 2008 QUESTION 3 There were no standard answers for this question. The following are a compilation of student answers that were accepted: BUY JPM (or SELL C) BUY JPM price target = $45.12 * 33.51/10.3 = $146.79 using trailing PE (while this answer may be outside the range of reasonableness, note that analysts often use more than one method to support their price target). BUY JPM price target = $49.21 = 10.62 x 1.058 (growth rate implied from PEG 10.3/1.77 compounded 1 year- should actually compound 2 years to end fye2009) x $4.38 using trailing PE and growth rate (forward PE may be used) HOLD (but prefer JPM to C) while JPM may have outperform C, its PEG>2, and its forward PE is around the same level as its trailing PE, which may suggest that it is more than fully valued. Price target JPM = current price SELL C Price target = $24.03 x 10.3/33.5 = $7.39 Supporting arguments should be along the line of JPM is better or C is worse:- JPM’s PEG ratio is lower than C, which means it’s less
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