Generally speaking,the P/E multiples are higher for firms with ____ expected growth rates and ____ expected required rates of return.
A) higher;lower
B) lower;higher
C) lower;lower
D) higher;higher

Question

Quizplus · Accepted Answer

Investors are willing to pay a higher price for a stock if they believe the company will have higher earnings and therefore, higher growth potential. Firms with higher expected growth rates are seen as more attractive investments, and as a result, they typically have higher P/E multiples. When the expected growth rate is higher, the required rate of return is lower because investors are more confident in the growth prospects of the company, which results in a lower discount rate. Therefore, the answer is A, higher expected growth rates and lower expected required rates of return.

Generally Speaking,the P/E Multiples Are Higher for Firms with ____