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Analyzing the stocks of two firms

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During your job at a major mutual fund, you are analyzing the stocks of two firms (A & B). Both firms are in the same industry and are approximately the same size. The price earnings ratio (P/E) for firm A is 11.2 and the P/E ratio for firm B is 13.5. Both ratios are based on forward or expected earnings.

a. Based on the differences in the P/E ratios, which firm would you expect to have the higher beta?

b. We are expecting interest rates to increase. Using no more than 25 words, explain how an increase in interest rates may affect the size of the P/E ratios.

Reference no: EM133198121

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