Firms with bright expectations for the future tend to trade at high P/E ratios.

Name: Firms with bright expectations for the future tend to trade at high P/E ratios.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

This statement is true. As investors believe that the firm has strong growth potential and will generate higher earnings in the future, they are willing to pay more for each dollar of current earnings, which drives up the price-to-earnings (P/E) ratio.

Firms with Bright Expectations for the Future Tend to Trade