To the extent that current profits are directly related to future profits, a high price/earnings ratio would indicate that stocks are
A) inexpensive.
B) expensive.
C) going to increase in value in the future.
D) most likely to fall in value if interest rates decline.

Question

Quizplus · Accepted Answer

A high price/earnings ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E ratio, indicating that the stock is expensive relative to its current earnings.

To the Extent That Current Profits Are Directly Related to Future