USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 7.4. Which of the following statements is correct?
A) Stocks X, Y, and Z are undervalued.
B) Stocks X, Y, and Z are overvalued.
C) Stocks X and Y are overvalued, and stock Z is undervalued.
D) Stocks X and Y are undervalued, and stock Z is overvalued.
E) Stocks X, Y, and Z are all properly valued.

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 7.4. Which of the following statements is correct?
A) Stocks X, Y, and Z are undervalued. 
B) Stocks X, Y, and Z are overvalued. 
C) Stocks X and Y are overvalued, and stock Z is undervalued. 
D) Stocks X and Y are undervalued, and stock Z is overvalued. 
E) Stocks X, Y, and Z are all properly valued.

Quizplus · Accepted Answer

Stock X has a price-to-earnings ratio (P/E) of 10, which is lower than the industry average of 12, making it undervalued. Stock Y has a P/E of 15, which is higher than the industry average, making it overvalued. Stock Z has a P/E of 9, which is significantly lower than the industry average, making it undervalued. Therefore, stocks X and Y are undervalued, and stock Z is overvalued, making D the correct choice.