All other things being equal,a firm's P/E ratio will be lower if investors think the firm's growth prospects are very good.

Question

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A firm's P/E (Price-to-Earnings) ratio is a measure of how much investors are willing to pay for each dollar of earnings the company generates. A lower P/E ratio suggests that investors are willing to pay less for each dollar of earnings, which typically indicates that the company's growth prospects are lower or uncertain. On the other hand, a higher P/E ratio suggests that investors are willing to pay more for each dollar of earnings, which usually indicates that the company's growth prospects are higher or more reliable. Therefore, all other things being equal, a firm's P/E ratio will be higher if investors think the firm's growth prospects are very good, not lower.

All Other Things Being Equal,a Firm's P/E Ratio Will Be