Question

Relative Valuation (45 min) X KNOWLEDGE CHECK On the chart below, if the earnings per share grew from 7.61 on December 31, 2018, to 7.82 on June 30, 2019, what would the implied earnings yield be? 2.2% 4.1% 24.4% 1.8% Click to open/close chart. II Search> MCD US Equity 4 Load Actions 3) Save As Graph Fundamentals YTD 10Y Max Quarterly Table R Fields/Securities 6M 1Y 3Y SY 7Y Options 8.00 Track Annotate Zoom O Reset 7.61 750 190.71 7.61 Earnings per Share (L1) Dividends per Share (L1) 4.19 180 Price per Share (R2) 190.71 7.00 6.50 160 6.00 5.50 140 5.00 120 4.50 4.19 4.00 100 3.50 02 2016 02 2017 02 Q3 2015 04 04 Q3 04 Q1 Q2 2018 03 04 2019

Answer 1

Answer:

The answer is the option 2=4.1%.

Explanation:

In the first instance, the question is misspelled. It seems to be a product of the transcription of an image. By googling the text, you can find the images that are attached where the problem arises.

Taking into account the above, let's work on the problem found.

First of all, the implied earnings yield is given by:

$E_{year} = \frac{(earnings-per-share)}{price-per-share}$

Replacing in equation:

$E_{year}=\frac{7.82}{190.71}$

$E_{year}=0.041$

which we can express in percentage terms as:

$E_{year}=4.1 %$

So, the answer is the option 2=4.1%.

Answer 2

The earning yield made using the data given is the ratio of the change in the earning per share to the price per share which is 4.1%

• The new earning per share = $7.82

• Price per share = 190.71

Earning yield = Earning per share / Price per share

Earning yield = $7.82 / $190.71

Earning yield = 0.0410046

This could be expressed as a percentage = 0.041 × 100% = 4.1%

Therefore, the earning yield made is 4.1%

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