Basu (1977, 1983) Found That Firms with Low P/E Ratios

question 67

Multiple Choice

Basu (1977, 1983) found that firms with low P/E ratios

• A) earned higher average returns than firms with high P/E ratios.
• B) earned the same average returns as firms with high P/E ratios.
• C) earned lower average returns than firms with high P/E ratios.
• D) had higher dividend yields than firms with high P/E ratios.

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Definitions:

Constant Rate

A fixed value, often used in calculations involving growth or decay, where the rate does not change over time.

Discount Rate

The interest rate charged by central banks on loans they provide to commercial banks.

Growth Dividend Policy

A strategy where a company intends to pay out increasing dividends over time as it reinvests profits to fuel growth and expansion.

Eps Growth Rate

The annual rate at which a company's earnings per share (EPS) has grown over a specified time period.