If a stock has a much higher than normal P/E ratio, investors probably expectA. rapid growth in earnings.B. a declining stock priceOC. slow growth in earnings.O D. large increases in the price of the stock.

PE ratio is the ratio of the stock price and the earnings per share of a stock

If a stock has a much higher than normal P/E ratio, investors probably expect ... O A. rapid growth in earnings. O B. a declining stock price OC. slow growth in earnings. O D. large increases in the price of the stock.

If a stock has a much higher than normal P/E ratio, investors probably expect ... O A. rapid growth in earnings. O B. a declining stock price OC. slow growth in earnings. O D. large increases in the price of the stock.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: Answer the following questions: A. Explain why the price of many individual stocks still goes down,…

A: Stock prices fluctuate regularly. It depends upon growth, dividend and discounting rate or WACC of…

Q: A firm is planning to issue bonds to make an equity repurchase to increase its stock price. It is…

A: It is important to note that the stock price is volatile and can change rapidly, reflecting changes…

Q: Stock A has a required return of 11%. Stock B has a required return of 9%. Both stocks have the…

A: As per dividend discounting model the present value of a stock is P0 = Div1/Ke-g ( where Div1 is…

Q: If the fair value of a stock is more than its market value, which of the following is a reasonable…

A: Fair value of a stock is also known as its intrinsic value.Intrinsic value of a stock is the present…

Q: Given the following for Stocki: PO 45.50 0.80 0.0300 E(rM) 0.1200 Bi rf News suddenly comes out that…

A: Step 1 A financial model used to determine an asset's expected rate of return is known as the…

Q: A stock with a beta of 0.8 is _______ risky than the market and will _______ when the market…

A: Beta is a statistical indicator that shows how the price of a specific stock or group of stocks…

Q: Which statement is NOT correct? The distribution of returns does not affect the expected average…

A: Dividend yield and capital gain yield are the two parts that can be separated out from the overall…

Q: There is a --- impact of earnings on stock prices O a. Deductive O b. Positive O c. Normative O d.…

A: Earnings, also known as net income or profit, represent the amount of money a company has left over…

Q: How does higher expected growth affect a stock’s value?

A: Stock value is referred to as the shares of the corporation, which used to appear to trade at the…

Q: A stock has a negative beta and does not pay dividends. Given this information, a model that is…

A: CAPM model can be used to understand the manner expected return related to undiversifiable risk.…

Q: (a) Compute and identify the stock that has the most systematic risk. (b) Compute and justify the…

A: It has been given in the question that the risk premium is the 7.5% and the risk-free rate of return…

Q: Which of the following empirical observations appear to contradict weak form market efficiency?…

A: The definition of an investment is an asset acquired or invested in to create wealth and save…

Q: Assume that you regularly invest in stocks. Explain (using intuition instead of math) how your…

A: STEP1: The portfolio of the stock will increase with respect to a higher risk-free rate as per CAPM…

Q: Dylan is a stock market day-trader who aims to profit from liquidity provision. Dylan's trading…

A: In the dynamic realm of the stock market, where every tick of the clock influences financial…

Q: te stock price follows a random walk, the price today is said to be equal to the prior period price…

A: This option suggests that the remaining difference in the stock price is due to abnormalities in the…

Q: A company announces a major expansion which causes the price of its stock to increase and also…

A: Put option- A contract that gives the option buyer the right but not the obligation to sell a…

Q: Hi can you do the last 2 please Valuation (Overvalued/Undervalued/Fairly Valued) Nature of stock…

A: 1. If mean is greater CAPM, the stock is undervalued. If mean is less than CAPM, the stock is…

Q: Answer this question based on the dividend growth model. If you expect the required rate of return…

A: The required rate of return represents the minimum return an investor will seek for taking on the…

Q: Is stock with Increasing dividend yield and decreasing market price per share a good stock to…

A: Dividend yield is the amount of money given to shareholders for owning a share of a company's stock…

Q: Delta Plc is considering investing in bespoke software solutions, which requires an initial…

A: ARR is the accounting rate of return and is the simple method of capital budgeting and does not…

Q: analyst is trying to determine the intrinsic value of a certain share. Which of the following is…

A: To find out the intrinsic value o the stock there two methods one is dividend discount model and…

Q: Which of the following is FALSE about preferred stock? Select one: a. the value of a preferred…

A: Introduction: Preferred stock-This type of stock has characteristics of both bonds and common stock…

Q: short seller anticipates the stock price will __________, so that the share can be purchased later…

A: In case of short selling, shares are short sold with the anticipation of share price falling and…

Q: About Dividend Discount Model (DDM) and stock valuation, which statement is NOT CORRECT? In DDM,…

A: The Dividend Discount Model operates under the tenet that a stock's value is equal to the present…

Q: Which of the following is true? a. Beta of a stock cannot be negative b. SML is an acronym for Stock…

A: Investors in the stock market need to have a strong understanding of various concepts related to…

Q: State of Economy Recession Normal Irrational exuberance Probability of State of Economy .26 .51 .23…

A: The systematic risk and standard deviation are used to determine how risky the stocks is.Systematic…

Q: 6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The…

A: The Final Answer is :- a) Expected return for DBB - 8.05%b) Coefficient of variation for DBB -…

Q: According to the Gordon growth formula, a stock with a lower P/E ratio has a lower growth rate of…

A: Answer - Price Earning Ratio - Means how much we will pay on the price of stock on the given…

Q: hich of the following is most likely a correct statement in regards to stock valuation models? The…

A: Solution:- We know that price of a stock is the present value of the expected future dividends along…

Q: Select all that are true with respect to a Price/Earnings (P/E) ratio. Group of answer choices Low…

A: Price/Earnings (P/E) ratio-This ratio helps to compare the price of a company's stock to the…

Q: Adding dividend exposure to a portfolio of non-dividend paying stocks will result in the portfolio’s…

A: There are two types of equity stocks as per their market stand and condition. Dividend-paying stocks…

Q: Please, tell me is it True or False and give a brief explenation to support the answer! According to…

A: The Carhart four-factor model is an extension of the three-factor model for asset pricing as…

Q: Q1)VaR can be defined as the minimal loss of a financial position during a given time period for a…

Q: Total leverage is a measure of total risk: it measures how earnings per share will change with a…

A: Please Note: As per the guideline, One question shall be answered here as both the question are…

Q: A stock whose return is more sensitive to changes in inflation, interest rates and GDP growth levels…

A: Beta is representation of systematic risk associated with a particular stock and systematic risk…

Q: You, in analyzing a stock, find that its expected return exceeds its required return. This suggests…

A: The objective of the question is to understand the implications of a situation where the expected…

Q: On the average, the announcement of a decrease in dividends can be interpreted by investors as bad…

A: A financial manager has to take three types of decisions for the company. They are investing…

Q: If the intrinsic value of a stock is greater than its market value, which of the following is a…

A: Fair value of a stock is also known as its intrinsic value. Intrinsic value of a stock is the…

Q: Which of the following statements is most correct? Other things equal, the higher the dividend…

A: Each of these statements reflects different financial concepts that can influence stock values, but…

Q: Higher a stock’s volatility, why does the higher the probability of large increases or decreases in…

A: Stock Volatility: Volatility is defined as a statistical measure of the dispersion of the returns…

Q: The P/E ratio, or multiplier, is a measure of the relative price of a stock. All of the following…

A: The P/E ratio, which stands for Price-to-Earnings ratio,, which stands for Price-to-Earnings ratio,…

Q: An engineer prepares a report to evaluate a project using PW and IRR. Just before submitting the…

A: Internal rate of return or IRR is the rate of discount at which the sum of discounted cash inflows…

Q: The dividend growth model is only useful for estimating a stock's value when the A. Stock's beta is…

A: Dividend Growth Model (DGM):It is a model that helps to compute the intrinsic value or current value…

Q: In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free…

A: Efficient market is the market in which stock prices refelcts all the information available.

Question

If a stock has a much higher than normal P/E ratio, investors probably expect
A. rapid growth in earnings.
B. a declining stock price
OC. slow growth in earnings.
O D. large increases in the price of the stock.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which of the following statements is most likely FALSE? ... O A. We should use the general dividend discount model to value the stock of a firm with rapid or changing growth. O B. As firms mature, their growth slows to rates more typical of established companies. Oc. The dividend discount model values the stock based on a forecast of the future dividends paid to shareholders.
Empirical evidence suggests that upon announcement of a new equity issue.current stock prices generally: A.increase,perhaps because the issues are associated with positive NPV projects B.increase,because the market supply is always less than demand C.remain about the same since an efficient market anticipates a new equity issue D.drop,perhaps because the new issue reflects management's view that common stock is currently overvalued
"The dividend discount model is used to find the price of a stock based on the expected dividends received by the shareholder and the discount rate. Therefore, all else constant, the price of a share of stock will increase if the discount rate decreases." A) True B) False
for your explaination on the second one, i think you mean the answer is B. as you stated it will result into decrease of expected return if stock
If the intrinsic value of a stock is below the current market price, over time we can expect buy orders to exceed sell orders, causing the price to rise buy and sell orders to be evenly matched, keeping the price at its current level sell orders to exceed buy orders, causing the price to rise sell orders to exceed buy orders, causing the price to fall buy orders to exceed sell orders, causing the price to fall
6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions Recession P Returns on DBB Returns on DVI 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let's say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?
Hansaben
If the expected rate of return on a stock is less than the required rate of return, The stock is experiencing supernormal growth. The stock should not be bought. The company is probably not trying to maximize its stock price. The stock is a good buy. Dividends are not being declared.
Detail explanation of all ques....
E2
The disposition effect: a. Is the tendency of stock investors to sell their winning stocks and hold onto their losing stocks b. Is consistent with regret avoidance behaviour c. Is a consequence of investors’ preference for lottery-type stocks d. (a) & (b) e. (a), (b) & (c)
A low P/B ratio implies that the market expects low future growth in earnings. True OR False PLEASE explain

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS