Question

Firm a is high-risk, and firm b is low-risk. everything else equal, which firm would you expect to have a higher p/e ratio?

Answer 1

Firm A is high-risk and Firm B is low-risk. Everything else equal, which firm would you expect too have a higher PE ratio

What is  PE ratio?

The price-earnings ratio (P/E ratio, P/E, or PER) is the ratio of a company's share price to its earnings per share. The ratio is used to determine the worth of a company and whether it is overpriced or undervalued.

So, what is an appropriate PE ratio for a stock? A "good" P/E ratio isn't always a high or low ratio on its own. The market average P/E ratio is now 20-25, therefore a higher PE ratio above that may be deemed negative, while a lower PE ratio may be considered better.

The P/E ratio indicates how much you will need to invest as an investor for every $1 in earnings.

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