The price-to-earnings ratio for firms in a given industry is distributed according to normal distribution.In this industry,a firm with a standard normal variable value of z = 1:
A)Has an above average price-to-earning ratio.
B)Has a below average price-to-earnings ratio.
C)Has an average price-to-earnings ratio.
D)Has the minimum possible price-to-earnings ratio.
E)Has the maximum possible price-to-earnings ratio.

Question

Quizplus · Accepted Answer

A standard normal variable value of z=1 corresponds to being one standard deviation above the mean in a normal distribution. Since the mean is considered as an average, being one standard deviation above the mean would correspond to being above average in this industry. Therefore, a firm with z=1 would have an above average price-to-earnings ratio.

The Price-To-Earnings Ratio for Firms in a Given Industry Is