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

question 25

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

---

Definitions:

Appraisal Theory

A theory in psychology that suggests emotions are extracted from our evaluations (appraisals or estimates) of events that cause specific reactions in different people.

Emotion

A complex psychological state involving an individual's physiological response, expressive behaviors, and conscious experience.

Modulate

To adjust or regulate the degree, extent, or intensity of something, often used in contexts involving sound, emotions, or scientific parameters.

Feelings

Feelings are emotional states or reactions that can encompass a wide range of sensations, such as happiness, sadness, anger, or fear.