In Relation to the Price-Earnings Ratio (P/E Ratio), Which Statement

question 44

Multiple Choice

In relation to the price-earnings ratio (P/E ratio) , which statement is incorrect?

• A) Higher P/E ratios tend to be associated with growth companies.
• B) As expectations of future profits increase the P/E ratio tends to fall.
• C) It measures how much investors are willing to pay for each dollar of earnings.
• D) A P/E ratio of 5.2 means that the shares of the company are selling at 5.2 times current profits.

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Definitions:

Profit-Maximizing

A strategy or objective of firms to adjust their production and pricing to achieve the highest possible profit.

Long-Run Demand Curve

Illustrates how the quantity of a good demanded changes over time as all economic factors, including production technologies and preferences, can adjust.

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, allowing for some differentiation and price control.

Demand Curve

A graph showing the relationship between the price of a good and the quantity of the good demanded, typically downward sloping, indicating that demand increases as price decreases.