The Price-earnings (PE) ratio could best be defined as __________.
A)value of the stock on the open market
B)closely related to the dividend discount model
C)how much a stockholder is willing to pay per dollar of earnings
D)what dividend percentage payout the stock pays

Question

Quizplus · Accepted Answer

The PE ratio is a valuation ratio that compares a company's share price to its earnings per share (EPS). It is calculated by dividing the market price per share by the EPS. Therefore, it represents how much investors are willing to pay per dollar of earnings. It is not related to the dividend discount model or the dividend percentage payout. It reflects the market's opinion of a company's future earnings potential.

The Price-Earnings (PE) Ratio Could Best Be Defined as __________