A company whose stock is selling at a P/E ratio greater than the P/E ratio of a market index most likely has _________.
A)an anticipated earnings growth rate which is less than that of the average firm
B)a dividend yield which is less than that of the average firm
C)less predictable earnings growth than that of the average firm
D)greater cyclicality of earnings growth than that of the average firm
E)none of the above.

Question

Quizplus · Accepted Answer

A higher P/E ratio often indicates that investors expect higher earnings growth in the future, which typically results in a lower dividend yield compared to the average firm.

A Company Whose Stock Is Selling at a P/E Ratio