What Does Return on Equity Measure

question 103

Multiple Choice

What does return on equity measure?

• A) The amount of pre-tax profit earned for each dollar invested
• B) The amount of profit earned for each share of stock
• C) The amount of profit earned for each dollar of previous profit retained in the business
• D) The amount of profit earned for each dollar invested
• E) The amount of pre-tax profit earned for each share of stock

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Definitions:

Cumulative Preferred Stock

A type of preferred stock where dividends accumulate if not paid in a given period, and must be paid out before common shareholders can receive dividends.

Noncumulative Preferred Stock

A type of preferred stock where dividends are not accumulated if they are not declared.

Par Value

The face value of a bond or stock as stated by the issuer, which does not necessarily reflect its market value.