Firm a Is High Risk and Firm B Is Low

question 10

Multiple Choice

Firm A is high risk and Firm B is low risk. Everything else equal, which firm would you expect to have a higher P/E ratio?

• A)Firm A
• B)Firm B
• C)Both would have the same P/E if they were in the same industry
• D)There is not necessarily any link between risk and P/E ratios

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Definitions:

Compounded Quarterly

A method of calculating interest where the interest is added to the principal four times a year.

End of Quarter Payments

Payments made at the conclusion of each quarter, often related to financial agreements or obligations.

Lump Amount

A single large sum payment or investment, as opposed to smaller, regular payments or investments.

Retirement

The period in life when one chooses to permanently leave the workforce behind, usually upon reaching a certain age or financial standing.