To Justify a High P/E Ratio, the Market Must Believe

question 130

Multiple Choice

To justify a high P/E ratio, the market must believe one of the following about a firm:

• A)it has low growth opportunities.
• B)it will have constant dividends forever.
• C)it has high growth opportunities.
• D)it will use low depreciation to increase earnings.

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Definitions:

Alpha Waves

Rapid low-amplitude brain waves that have been linked to feelings of relaxation.

Psychoanalysis

A therapeutic approach that focuses on exploring unconscious conflicts and motivations to treat psychological disorders.

Sigmund Freud

An Austrian neurologist and the founder of psychoanalysis, a method for treating psychopathology through dialogue between a patient and a psychoanalyst.

Unconscious

The part of the mind that contains thoughts, memories, and desires beyond conscious awareness, influencing feelings and behavior.