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Estimate the new price to book equity ratio

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Question - Now assume that as a result of the banking crisis of the last few weeks, you expect the regulatory authorities to raise capital requirements immediately for banks by 20%. (Banks will need 20% more book equity to deliver the same net income). Also, assume that the equity risk premium has risen to 6%. If the stable growth rate remains 3%, estimate the new price to book equity ratio for First Safe Interstate Bank.

Reference no: EM133156130

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