Which of the following changes will likely lead to a lower P/E, assuming other factors are equal?
A) An increase in the dividend payout ratio.
B) A decrease in growth rate of earnings.
C) A decrease in the required rate of return.
D) An increase in the dividend yield.

Question

Quizplus · Accepted Answer

A decrease in the growth rate of earnings typically leads to a lower Price to Earnings (P/E) ratio because investors are willing to pay less for each dollar of earnings when they expect those earnings to grow more slowly in the future.

Which of the Following Changes Will Likely Lead to a Lower