Which of the Following Statements Regarding the Price/earnings Ratio Is

question 191

Multiple Choice

Which of the following statements regarding the price/earnings ratio is incorrect?

• A) The price/earnings ratio represents the market price of one share of common stock.
• B) A price/earnings ratio of 9.2 implies that the company's stock is selling at 9.2 times one year's earnings per share.
• C) A higher price/earnings ratio signifies a higher return on investment.
• D) The price/earnings ratio is most useful when comparing one company to another.

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Definitions:

Discount

A reduction from the usual cost of something, often used to encourage prompt payment or increase sales.

Market Interest Rate

The prevailing rate of interest that borrowers and lenders can expect to transact at in the broader financial market, influenced by supply and demand.

Contractual Interest Rate

The rate of interest agreed upon within the terms of a loan or bond agreement, payable to lenders or bondholders.

Premium on Bonds Payable

The extra amount over the face value that investors are willing to pay for a bond, reflecting better interest or lower risk.