Which of the following variables has an inverse relationship with the P/E ratio?
A)payout ratio
B)expected growth rate of dividends
C)expected growth rate of earnings
D)required rate of return

Question

Quizplus · Accepted Answer

The P/E ratio is calculated by dividing the stock price by earnings per share (EPS). The required rate of return is the minimum rate of return an investor expects to earn from an investment. A higher required rate of return implies a lower stock price, which leads to a lower P/E ratio. Therefore, the required rate of return has an inverse relationship with the P/E ratio. The payout ratio, expected growth rate of dividends and expected growth rate of earnings, on the other hand, have a direct relationship with the P/E ratio.

Which of the Following Variables Has an Inverse Relationship with the P/E