Question

Companies E and P each reported the same earnings per share (EPS), but Company E's stock trades at a higher price. Which of the following statements is CORRECT? a. Company E probably has fewer growth opportunities. b. Company E trades at a higher P/E ratio. c. Company E is probably judged by investors to be riskier. d. Company E must pay a lower dividend. e. Company E must have a higher market-to-book ratio.

Answer 1

Answer:

Company E trades at a higher P/E ratio (b)

Explanation:

P/E ratio is the price you must pay per unit of current earnings which is based on the investor's future expectation of the market.

It shows the relationship between a company’s stock price and earnings per share (EPS).

A company with higher P/E ratio will sell its share more expensively than the one with lower P/E ratio.