Which One of the Following Statements Related to the Price-Earnings

question 5

Multiple Choice

Which one of the following statements related to the price-earnings (P/E) ratio is correct?

• A)The earnings yield is the inverse of the P/E ratio.
• B)The P/E ratio is equal to the market price per share divided by total net income.
• C)The P/E ratio shown in The Wall Street Journal is based on next year's estimated earnings per share.
• D)The P/E ratio varies directly with earnings per share.
• E)The earnings for the past twelve months is the method analysts prefer for computing earnings for the P/E ratio.

---

Definitions:

Marginal Utility

The additional satisfaction or benefit received by consuming one more unit of a good or service.

Consumer Demand Curve

illustrates the relationship between the price of a good or service and the quantity demanded by consumers over a period, typically showing an inverse relationship.

Diminishing Marginal Utility

The principle that says the additional satisfaction a consumer gains from consuming one more unit of a good or service will lessen with each additional unit consumed.

Marginal Utility

Marginal utility is the additional satisfaction or utility that a consumer derives from consuming one more unit of a good or service.