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

question 75

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) None of the above.

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Definitions:

Accounting Profit

The financial gain calculated by subtracting total explicit costs from total revenue.

Perfect Information

A market condition where all participants have access to complete and accurate information concerning all aspects of the market and relevant transactions.

Create Wealth

Involves generating significant assets or resources through various means such as investment, entrepreneurship, or economic activities.

Resource Value

The worth of a resource based on its ability to produce goods, provide services, or satisfy needs and wants in an economy.