A P/E Ratio for a Firm That Is Higher Than

question 51

Multiple Choice

A P/E ratio for a firm that is higher than the industry average may indicate:

• A)the firm's growth prospects are seen as being below its competitors
• B)the share is probably underpriced and so you would give a 'buy' recommendation
• C)the share is probably underpriced so you would give a 'sell' recommendation
• D)the share is relatively expensive
• E)None of these.

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Definitions:

Equilibrium Quantity

At the market equilibrium price, the amount of goods or services provided matches the amount that is demanded.

Substitutes

Goods or services that can replace each other in usage, such that an increase in the price of one leads to an increase in demand for the other.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the equilibrium price in a market.

Equilibrium Price

The price point in the market where the amount of products offered meets the amount of products wanted.