Other things being equal,
A) the higher the expected growth rate, the lower the P/E ratio.
B) as the risk-free rate increases, the required rate declines.
C) as the required rate of return increases, the P/E ratio declines.
D) as the equity risk premium increases, the required rate of return will declines.

Question

Quizplus · Accepted Answer

As the required rate of return increases, the present value of future earnings decreases, leading to a lower P/E ratio.

Other Things Being Equal