Two Seattle University professors studied the rela- tionship between price-earnings ratios and returns from stocks. They came up with a simple formula to estimate how equity investments will grow: Multiply the p-e by 0.57 and subtract that from 20.67. Here are some predicted returns based on p-e ratios.

P-E PREDICTED RATIO* RETURN**

5 17.82% 10 14.97 15 12.12 20 9.27 25 6.42 30 3.57 35 0.72 40 -2.13 45 -4.98 50 -7.83

* Based on last 12 months' earnings ** Average annual return for next five years Data: "P/E Ratios and Stock Market Returns," Ruben C. Trevino and Fiona Robertson, Seattle University; BusinessWeek

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