Question

25. A high price earnings ratio (PE) is consistent with which of the following interpretations?

    A. The market expects earnings to fall in the future.
    B. The market feels the firm's earnings are very high risk and are willing to pay a

    premium for them.
    C. The market expects the earnings to rise in the future. D. The firm is not paying a dividend.

26. If ABC BANK received a 1 rating for Management, Capital and Liquidity and a 3 rating for Sensitivity, Asset Quality and Earnings, the overall CAMELS rating would be 2. Is this statement true or false?
    T. True

    F. False 28 Holding all else constant, a stock's price will be highest if its dividend growth rate is    A. 15%. B. 10%. C. 5%. D. 2%.

Answer 1

Q) A high price earnings ratio (PE) is consistent with which of the following interpretations?

Correct answer is Option C - "The market expects the earnings to rise in the future"

Since, the market expects the earnings of the Stock to rise in future, hence, the Stock commands a higher P/E Multiple.

Option A is false, because if earnings are expected to fall in the future, then the Stock will be given a lower P/E Multiple

Option B is also false, because if firm's earnings are very high risk, then this results in significant earnings uncertainty and hence a lower P/E Multiple will be provided

Option D is also false, as dividends and PE Ratio don't have any correlation