Company J and Company K Each Recently Reported the Same

question 14

Multiple Choice

Company J and Company K each recently reported the same earnings per share (EPS) . Company J's stock, however, trades at a higher price. Which of the following statements is most correct?

• A) Company J must have a higher P/E ratio.
• B) Company J must have a higher market to book ratio.
• C) Company J must be riskier.
• D) Company J must have fewer growth opportunities.
• E) All of the statements above are correct.

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Definitions:

Fixed Incomes

Types of investment securities that pay investors fixed interest or dividend payments until their maturity date.

Business Cycle

The cyclical pattern of economic growth characterized by phases of expansion, peak, downturn, and recovery, which naturally progresses over time.

Recovery Phase

A period in the economic cycle where economic activity starts to increase again after a recession, leading to growth in GDP and employment.

Prosperity

A state of economic well-being and flourishing, characterized by financial success and material wealth.