A key assumption of using price-earnings ratio as a measure of a potential future asset-price bubble is that:
A)past earnings are mirror images of the future.
B)past earnings are a decent guide to future earnings.
C)future earnings are known with certainty.
D)inflation is zero.

Question

Quizplus · Accepted Answer

The key assumption of using price-earnings ratio as a measure of a potential future asset-price bubble is that past earnings are a decent guide to future earnings. While future earnings are not known with certainty, past earnings can provide insight into the potential future of earnings.

A Key Assumption of Using Price-Earnings Ratio as a Measure