What does a high price/earnings ratio indicate?
A) Either the stock is undervalued or people have become more optimistic about the corporation's prospects.
B) Either the stock is overvalued or people have become more optimistic about the corporation's prospects.
C) Either the stock is overvalued or people have become less optimistic about the corporation's prospects.
D) Either the stock is undervalued or people have become less optimistic about the corporation's prospects.

Question

Quizplus · Accepted Answer

A high price/earnings ratio indicates that the stock is being valued relatively highly compared to its earnings. This could be because people have become more optimistic about the corporation's prospects, but it could also mean that the stock is overvalued. Therefore, choice B is the best answer.

What Does a High Price/earnings Ratio Indicate