Which of the following is true about the price-earnings PE ratio of

Question

Which of the following is true about the price-earnings (P/E) ratio of a firm?

a. The higher the P/E ratio, the less investors are willing to pay for each dollar earned by the firm.

b. If a firm's P/E ratio is 8, then, it would take 8 years for an investor to double his or her initial investment.

c. The appropriate value of P/E ratio is multiplied by the earnings per share (EPS) to estimate the appropriate stock price.

d. If a company's P/E ratio is too high relative to that of similar firms, its earnings have not been fully captured in the existing stock value.

e. If the firm's P/E ratio is too low relative to that of similar firms, it means that the market has overvalued its current earnings.

Answer

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