A High P/E Ratio Indicates That ________

question 42

Multiple Choice

A high P/E ratio indicates that ________.

• A)a company is highly profitable
• B)investors believe that a company has the potential for significant growth
• C)the company paid a large dividend compared with its earnings per share
• D)a company has high earnings per share

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Definitions:

Bond Redemption

The process of repaying the principal amount of a bond at or before its maturity date.

Carrying Value

The book value of an asset as shown in the company's balance sheet, representing the cost of the asset minus accumulated depreciation or amortization.

Effective-Interest Method

A technique used in accounting to allocate the interest expense or income over the life of a financial instrument based on its carrying amount.

Interest Expense

The cost incurred by an entity for borrowed funds, recognized as a financial charge over the repayment period.