Which of the Following Statements Regarding P/E Ratios Is True

question 46

Multiple Choice

Which of the following statements regarding P/E ratios is true?

• A)Generally,the riskier the stock,the higher the P/E ratio.
• B)In recent years,the small capitalization stocks had the highest P/E ratios.
• C)As interest rates increase,P/E ratios are expected to decline.
• D)Higher growth prospects often lead to lower P/E ratios.

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Definitions:

Shares

Units of ownership in a company or financial asset that represent a portion of the total capital.

Dividend Yield

A company's yearly dividend disbursement compared to its stock price, shown as a financial ratio.

Dividend Income

Income received from owning shares of stock in a company, usually paid out from the company's profits to shareholders at regular intervals.

Shares

Portions of ownership in a corporation, representing a claim on part of its assets and earnings.