A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has
A) an anticipated earnings growth rate which is less than that of the average firm.
B) a dividend yield which is less than that of the average firm.
C) less predictable earnings growth than that of the average firm.
D) greater cyclicality of earnings growth than that of the average firm.

Question

Quizplus · Accepted Answer

A company with a higher P/E ratio compared to the market index is often expected to have higher earnings growth, which can lead to lower dividend yields as the company might reinvest earnings rather than distribute them as dividends.

A Company Whose Stock Is Selling at a P/E Ratio