In Estimating and Comparing Value,the Price-To-Earnings (P/E )Multiple Has Two

question 4

Multiple Choice

In estimating and comparing value,the price-to-earnings (P/E ) multiple has two major flaws.Which of the following are those flaws?
I.It is in squared currency units.
II.The P/E is affected by a company's capital structure.
III.The earnings (net income ) are calculated after nonoperating items.
IV.The market measure of price usually has significant error.

• A)I and II only.
• B)I and III only.
• C)II and III only.
• D)III and IV only.

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Definitions:

Market Index

A measurement of the performance of a specific "basket" of stocks considered to represent a particular market or sector.

Standard Deviation

A statistical measure of the dispersion or variability of a set of data points or investment returns.

Expected Market Return

The average return that investors anticipate from the overall market over a certain period, based on historical trends and economic conditions.

Stock Beta

A gauge for assessing the risk or volatility inherent in a security or portfolio against the entire market's movements.