You are analyzing a stock. You expect that earnings will grow quickly relative to its current level, but the expected return on common stockholders' equity is low. Assuming price to be constant, what levels of the price-to-earnings ratio (PE) and the price-to-book ratio (PB) would you expect to see? $$\begin{array} { l l l }
&\text { PE Ratio } &\text { PB Ratio }\
\text { A) } & \text { Low } & \text { Low } \
\text { B) } & \text { Low } & \text { High } \
\text { C) } & \text { High } & \text { High } \
\text { D) } & \text { High } & \text { Low }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Question

You are analyzing a stock. You expect that earnings will grow quickly relative to its current level, but the expected return on common stockholders' equity is low. Assuming price to be constant, what levels of the price-to-earnings ratio (PE) and the price-to-book ratio (PB) would you expect to see? $$\begin{array} { l l l } 
&\text { PE Ratio } &\text { PB Ratio }\
\text { A) } & \text { Low } & \text { Low } \
\text { B) } & \text { Low } & \text { High } \
\text { C) } & \text { High } & \text { High } \
\text { D) } & \text { High } & \text { Low }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

The PE ratio is low because the expected return on equity is low. The PB ratio is also low because the price is constant and earnings are expected to grow quickly.

You Are Analyzing a Stock A)Option a B)Option B C)Option C D)Option D

You Are Analyzing a Stock A)Option a
B)Option B
C)Option C
D)Option D