Studies of the Relationship Between P/E Ratios and Stock Returns

question 54

Multiple Choice

Studies of the relationship between P/E ratios and stock returns have found that

• A) low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
• B) low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks.
• C) high P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
• D) high P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks.
• E) low P/E stocks of small cap stocks equaled the performance high P/E stocks of large cap stocks.

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Definitions:

Deep Discount

A significant reduction in price offered on a product or service, often to clear inventory or attract buyers.

Coupon Bond

A debt security that pays the holder a fixed interest rate (coupon) over a specified period until its maturity.

Indenture Agreement

A formal contract between a bond issuer and a bondholder that specifies the terms of the bond.

Call Provision

A feature of a bond that allows the issuer to repay the bond before its maturity date.