Which of the following descriptions of the price/earnings ratio is the most accurate?
A) Investors are generally more pessimistic about the prospects for high P/E stocks.
B) Historically, the average P/E for the market has been approximately 10.
C) Companies with high growth rates generally have higher P/E ratios.
D) All else the same, investors prefer to purchase stocks with relatively high P/E ratios.

Question

Quizplus · Accepted Answer

Companies with high growth rates generally have higher P/E ratios because investors are willing to pay more for the potential of future earnings growth.

Which of the Following Descriptions of the Price/earnings Ratio Is