The price differential, or the amount by which the market has discounted share price for risk, is calculated by
a. subtracting the book value from the residual income model book value calculated using the risk free rate.
b. subtracting the market price from the residual income model price calculated using the risk free rate.
c. multiplying the theoretical price-earnings ratio by the market price.
d. subtracting the residual income model price calculated using RE from the residual income model price calculated using the risk free rate.
B
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