You are analyzing a stock. You expect that earnings will grow quickly relative to their current level, but the expected return on common stockholders' equity is low. What levels of the price earnings ratio (P/E) and price to book value ratio (P/BV) would you expect to see (relative to industry average)? $$\begin{array} { | c | c | c | }
\hline & \text { P/E Ratio } & \text { P/BV Ratio } \
\hline \text { A) } & \text { Low } & \text { Low } \
\hline \text { B) } & \text { Low } & \text { High } \
\hline \text { C) } & \text { High } & \text { High } \
\hline \text { D) } & \text { High } & \text { Low } \
\hline
\end{array}$$

Question

You are analyzing a stock. You expect that earnings will grow quickly relative to their current level, but the expected return on common stockholders' equity is low. What levels of the price earnings ratio (P/E) and price to book value ratio (P/BV) would you expect to see (relative to industry average)? $$\begin{array} { | c | c | c | } 
\hline & \text { P/E Ratio } & \text { P/BV Ratio } \
\hline \text { A) } & \text { Low } & \text { Low } \
\hline \text { B) } & \text { Low } & \text { High } \
\hline \text { C) } & \text { High } & \text { High } \
\hline \text { D) } & \text { High } & \text { Low } \
\hline
\end{array}$$

Quizplus · Accepted Answer

A high P/E ratio is expected due to the anticipated high earnings growth, while a low P/BV ratio is expected due to the low return on equity.

You Are Analyzing a Stock A) Option a B) Option B C) Option C D)

You Are Analyzing a Stock A) Option a
B) Option B
C) Option C
D)