Laura Is Considering Two Investments: Stock a and B

question 119

Multiple Choice

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

• A) Stock B is better because it is considered to be cheaper than Stock A.
• B) Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.
• C) Since the P/E ratios are the same, Laura would be indifferent between the two stocks.
• D) None of these choices are correct.

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Definitions:

Information-Processing Model

A cognitive approach that uses the metaphor of a computer to describe how the human mind manages information through various processes including encoding, storage, and retrieval.

Computer

An electronic device that can be programmed to carry out a set of arithmetic or logical operations automatically.

Testing Method

A process or technique used to evaluate the effectiveness, performance, or reliability of a system, product, or concept.

Available Glucose

The quantity of glucose readily accessible in the bloodstream for use by the body as a source of energy.