Question

If you look at stock prices over any year, you will find a high and low...

If you look at stock prices over any year, you will find a high and low stock price for the year. Instead of a single benchmark PE ratio, we now have a high and low PE ratio for each year. We can use these ratios to calculate a high and a low stock price for the next year. Suppose we have the following information on a particular company:

Year 1 Year 2   Year 3 Year 4
   High price       $48.60       $57.34       $69.46     $74.85      
   Low price 37.25       42.18       55.85       63.18       
   EPS      2.02     2.31       2.45   3.05      

Earnings are expected to grow at 9 percent for the next year.

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