A high price-earnings ratio for a stock indicates that either the stock is
A)undervalued or people are relatively optimistic about the corporation's prospects.
B)overvalued or people are relatively optimistic about the corporation's prospects.
C)overvalued or people are relatively pessimistic about the corporation's prospects.
D)undervalued or people are relatively pessimistic about the corporation's prospects.

Question

Quizplus · Accepted Answer

A high price-earnings ratio for a stock indicates that the stock is overvalued, meaning that investors are willing to pay more for the stock relative to its earnings. This typically occurs when people are relatively optimistic about the corporation's prospects, leading them to bid up the stock price.

A High Price-Earnings Ratio for a Stock Indicates That Either