Shares that are classified as __________ have a high book-to-market ratio.

A) blue-chip shares
B) green-chip shares
C) growth shares
D) value shares

Question

Shares that are classified as __________ have a high book-to-market ratio.

A) blue-chip shares
B) green-chip shares
C) growth shares
D) value shares

Quizplus · Accepted Answer

Broadly defined,growth shares have low book-to-market ratios while value shares have high book-to-market ratios.It is argued that firms coming off a low profit base,but undertaking expansion through growth opportunities,will have a relatively low book value,as the firm will have a relatively low value of historical assets in place.However,the market value will be higher,as it incorporates the present value of the growth opportunities.Thus,the book-to-market ratio will be low.In contrast,value shares are those with a relatively high value of historical assets in place.These firms are generally viewed by the market as having low growth opportunities,and hence their market price is low in a relative sense.Therefore,value shares have a high book-to-market ratio.

Shares That Are Classified as __________ Have a High Book-To-Market