Which of the Following Statements Is True About the Price

question 114

Multiple Choice

Which of the following statements is true about the price earnings (P/E) ratio?

• A) It is a ratio of importance to creditors.
• B) A high P/E ratio indicates investors have little confidence in the future profit potential of the company.
• C) The P/E ratio could be used to approximate the value investors would be willing to pay for the company's acquisition from existing owners.
• D) The P/E ratio increases as profit increases.

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Definitions:

Variable Interest

An interest rate on a loan or security that can change over time based on the underlying benchmark interest rates.

Security Interest

A creditor’s right to use collateral to recover a debt.

Security Agreement

A written agreement that creates a security interest.

Purchase Money Security Interest (PMSI)

A special type of security interest that allows creditors to obtain priority in a debtor's collateral, provided the credit was used to purchase the collateral.