If a Company's P/E Ratio Suddenly Decreases

question 36

Multiple Choice

If a company's P/E ratio suddenly decreases:

• A)you should sell the shares as soon as possible.
• B)you should buy more of the shares to increase your average gain.
• C)the company probably announced higher earnings forecasts.
• D)the market must have reacted to some bad news that is expected to affect the company in the future.

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Definitions:

Continuous Spectrum

A type of emission spectrum showing an uninterrupted band of colors from red to violet, typically emitted by an incandescent solid, liquid, or gas under pressure.

Wavelengths

The distance between consecutive peaks (or troughs) in a wave, often used in the context of electromagnetic radiation.

Ground State

The lowest energy state of an atom or other particle, which is the most stable and preferred configuration.

Electrons

Fundamental particles that contribute to the electrical properties of atoms, possessing a negative charge and existing in the electron cloud.