Which of the following statements regarding the P/E ratio is not true?
A)The P/E ratio indicates how much investors are willing to pay for a share of a company's stock as a multiple of current earnings.
B)A high P/E ratio may mean that investors have pushed the price of the stock up in anticipation of higher future net income.
C)If EPS decreases and there is no change in the market price of the stock,the P/E ratio will decrease.
D)If the market price of the stock increases and there is no change in EPS,the P/E ratio will increase.

Question

Quizplus · Accepted Answer

If EPS decreases and there is no change in the market price of the stock, the P/E ratio will actually increase. This is because the earnings component of the ratio has decreased while the market price component remains the same, leading to a higher P/E ratio. Therefore, statement C is not true.

Which of the Following Statements Regarding the P/E Ratio Is