QFIP-162: Hidden Dangers of Passive Investing

Question 1

Briefly describe the following:

Price-to-economic book value (PEBV)

Growth Appreciation Period (GAP)

Answer 1

Price-to-economic book value (PEBV)
Ÿ Indicates markets expectations for future profit growth
Ÿ For example, PEBV = 2 indicates the market expects profits to double

Growth Appreciation Period (GAP)
Ÿ Number of years holdings must grow at forecasted rates to justify current stock
prices