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:

Income Elasticity of Demand

An indicator showing the responsiveness of the amount of a product that customers want to buy to variations in their income levels.

Inferior Goods

Products whose demand decreases as the income of the consumer increases, often because consumers opt for higher quality alternatives when they can afford them.

Southwest Airlines

An American low-cost airline known for its unique business model and customer service approach.

New Markets

Market segments or geographical areas that were previously unexplored or underexploited by a business or industry.