Explanation

To calculate the predicted P/E ratio using the multiple regression model:

Regression Equation: $\text{P/E} = \text{Intercept} + (\text{Coefficient}_1 \times \text{Factor}_1) + (\text{Coefficient}_2 \times \text{Factor}_2)$

Given:

• Intercept = 2.8
• Coefficient for Factor 1 = 1.8
• Coefficient for Factor 2 = -0.4
• Factor 1 = 12.5
• Factor 2 = 5.3

Calculation: $\text{Predicted P/E} = 2.8 + (1.8 \times 12.5) + (-0.4 \times 5.3)$ $= 2.8 + 22.5 + (-2.12)$ $= 2.8 + 22.5 - 2.12$ $= 25.3 - 2.12$ $= 23.18$

Therefore, the predicted P/E ratio is 23.18.

Note: The calculation shows that 23.18 is the exact predicted value based on the given coefficients and factor values.