Which of the Following Is True About the Price-Earnings (P/E)

question 57

Multiple Choice

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

• A)The higher the P/E ratio, the less investors are willing to pay for each dollar earned by the firm.
• B)If a firm's P/E ratio is 8, then, it would take 8 years for an investor to double his or her initial investment.
• C)The appropriate value of P/E ratio is multiplied by the earnings per share (EPS) to estimate the appropriate stock price.
• D)If a company's P/E ratio is too high relative to that of similar firms, its earnings have not been fully captured in the existing stock value.
• E)If the firm's P/E ratio is too low relative to that of similar firms, it means that the market has overvalued its current earnings.

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