For the P/E Ratio to Be a Good Predictor of Stock

question 60

Multiple Choice

For the P/E ratio to be a good predictor of stock price,

• A)the "earnings" used in the denominator should be the average annual earnings of the firm over at least the past 10 years.
• B)it must be computed on an aggregate (firm-wide)basis rather than on a per-share basis.
• C)the firm's one-year annual earnings must be representative of its future annual earnings.
• D)the annual earnings of the firm must be almost identical to its annual cash flow for the year.

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