When Considering the Determinants of the Price to Book Value

question 46

Multiple Choice

When considering the determinants of the price to book value ratio (P/BV) which of the following statements are correct?
I. The greater a company's return on common stockholders' equity the greater the P/BV ratio, all other things being equal
II. The greater a company's cost of equity the greater the P/BV ratio, all other things being equal
III. The greater a company's return on common stockholders' equity equals a company's cost of equity the P/BV ratio should equal 1.0
IV. The greater a company's current earnings the higher the P/BV ratio

• A) I, III and IV
• B) I and III
• C) II and IV
• D) I and II