The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because
A) the DDM uses a different price in the numerator.
B) the DDM uses different earnings measures in the denominator.
C) the prices reported are not accurate.
D) the people who construct the ratio from financial statements have inside information.
E) They are not different-this is a "trick" question.

Question

Quizplus · Accepted Answer

The P/E ratio derived from the dividend discount model (DDM) differs from the one based on a firm's financial statements because the DDM incorporates expected future earnings (which can include growth estimates) in the denominator, rather than past or current earnings.

The P/E Ratio That Is Based on a Firm's Financial