The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because
A)the DDM uses a different price in the numerator.
B)the DDM uses different earnings measures in the denominator.
C)the prices reported are not accurate.
D)the people who construct the ratio from financial statements have inside information.

Question

Quizplus · Accepted Answer

The P/E ratio based on financial statements uses earnings per share (EPS) in the denominator, while the P/E ratio derived from the DDM uses discounted cash flows from future dividends. Therefore, the two ratios will be different. None of the other choices are correct.

The P/E Ratio That Is Based on a Firm's Financial