Growth shares are those firms that are expected to grow at a faster rate than:

A) value shares
B) speculative shares
C) glamorous shares
D) the market

Question

Growth shares are those firms that are expected to grow at a faster rate than:

A) value shares
B) speculative shares
C) glamorous shares
D) the market

Quizplus · Accepted Answer

Growth shares have low book-to-market ratios while value shares have high book-to-market ratios.Firms coming off a low profit base but undertaking expansion through growth opportunities will have a relatively low book value,as the firm will have a relatively low value of historical assets in place.However,the market value will be higher,as it incorporates some of the future value arising from the growth opportunities.Thus,the book-to-market ratio of growth shares is low.In contrast,value shares are those with a relatively high value of assets in place.These firms are generally viewed by the market as having low growth opportunities,and hence their market price is relatively low,being closer to book value.Therefore,value shares have a high book-to-market ratio.Hence,growth shares are those firms that are expected to grow at a faster rate than the market.

Growth Shares Are Those Firms That Are Expected to Grow