Graham’s adjusted earnings-multiple formula: P/E = [8.5 + 2G] * (4.4/Y)
Where: G = expected annual earnings growth percentage. (Initially, no-growth stocks have a P/E of 8.5; each 1% growth adds 2 points.)
Y = the AAA corporate bond yield.
Why it matters: Interest rates significantly influence P/E ratios; the same growth can justify different valuations depending on yields.
| Bond Yield | 0% | 5% | 10% | 15% | 20% | 25% | 30% | 35% | 40% | |------------|-----|-----|-----|-----|-----|-----|-----|-----|-----| | 1% | 37.4 | 81.4 | 125.4 | 169.4 | 213.4 | 257.4 | 301.4 | 345.1 | 389.4 | | 2% | 18.7 | 40.7 | 62.7 | 84.7 | 106.7 | 128.7 | 150.7 | 172.7 | 194.7 | | 3% | 12.5 | 27.1 | 41.8 | 56.5 | 71.1 | 85.8 | 100.5 | 115.1 | 129.8 | | 4% | 9.4 | 20.4 | 31.4 | 42.4 | 53.4 | 64.4 | 75.4 | 86.4 | 97.4 | | 5% | 7.5 | 16.3 | 25.1 | 33.9 | 42.7 | 51.5 | 60.3 | 69.1 | 77.9 | | 6% | 6.2 | 13.6 | 20.9 | 28.2 | 35.6 | 42.9 | 50.2 | 57.6 | 64.9 | | 7% | 5.3 | 11.6 | 17.9 | 24.2 | 30.5 | 36.8 | 43.1 | 49.3 | 55.6 | | 8% | 4.7 | 10.2 | 15.7 | 21.2 | 26.7 | 32.2 | 37.7 | 43.2 | 48.7 | | 9% | 4.2 | 9.0 | 13.9 | 18.8 | 23.7 | 28.6 | 33.5 | 38.4 | 43.3 | | 10% | 3.7 | 8.1 | 12.5 | 16.9 | 21.3 | 25.7 | 30.1 | 34.5 | 38.9 | | 11% | 3.4 | 7.4 | 11.4 | 15.4 | 19.4 | 23.4 | 27.4 | 31.4 | 35.4 | | 12% | 3.1 | 6.8 | 10.5 | 14.1 | 17.8 | 21.5 | 25.1 | 28.8 | 32.5 | | 13% | 2.9 | 6.3 | 9.6 | 13.0 | 16.4 | 19.8 | 23.2 | 26.6 | 30.0 | | 14% | 2.7 | 5.8 | 9.0 | 12.1 | 15.2 | 18.4 | 21.5 | 24.7 | 27.8 | | 15% | 2.5 | 5.4 | 8.4 | 11.3 | 14.2 | 17.2 | 20.1 | 23.0 | 26.0 | | 16% | 2.3 | 5.1 | 7.8 | 10.6 | 13.3 | 16.1 | 18.8 | 21.6 | 24.3 | | 17% | 2.2 | 4.8 | 7.4 | 10.0 | 12.6 | 15.1 | 17.7 | 20.3 | 22.9 | | 18% | 2.1 | 4.5 | 7.0 | 9.4 | 11.9 | 14.3 | 16.7 | 19.2 | 21.6 | | 19% | 2.0 | 4.3 | 6.6 | 8.9 | 11.2 | 13.5 | 15.9 | 18.2 | 20.5 | | 20% | 1.9 | 4.1 | 6.3 | 8.5 | 10.7 | 12.9 | 15.1 | 17.3 | 19.5 |
Disclaimer: all common stocks have a nominal legal minimum price value equal to or less than Par value of $0.01.