Which two of the following are most apt to cause a firm to have a higher price-earnings ratio?
I. slow industry outlook
II. high prospect of firm growth
III. very low current earnings
IV. investors with a low opinion of the firm
A) I and II only
B) II and III only
C) II and IV only
D) I and III only
E) III and IV only

Question

Quizplus · Accepted Answer

A high prospect of firm growth (II) can lead to a higher price-earnings ratio as investors are willing to pay more for future earnings. Very low current earnings (III) can also result in a higher P/E ratio if the price remains high due to expectations of future growth.

Which Two of the Following Are Most Apt to Cause