Which of the Following Statements Is False

question 29

Multiple Choice

Which of the following statements is false?

• A) We can estimate the value of a firm's shares by multiplying its current earnings per share by the average P/E ratio of comparable firms.
• B) For valuation purposes, the trailing P/E ratio is generally preferred, since it is based on actual, not expected, earnings.
• C) Forward earnings are the expected earnings over the coming 12 months.
• D) Trailing earnings are the earnings over the previous 12 months.

---

Definitions:

Diversifiable Risk

The risk that a borrower will not pay theinterest and/or principal on a loan as it becomes due. Ifthe issuer defaults, investors receive less than the promised return on the bond. Default risk is influenced byboth the financial strength of the issuer and the terms ofthe bond contract, especially whether collateral has beenpledged to secure the bond. The greater the default risk,the higher the bond’s yield to maturity.

Required Rate

The minimum annual percentage return an investment must earn to be considered a viable option.

Nondiversifiable Risk

A type of investment risk that cannot be mitigated or eliminated through portfolio diversification, often associated with market-wide risks.

Realized Return

The actual gain or loss achieved on an investment over a specific period, taking into account both income and capital gains.