The price-to-earning ratio for firms in a given industry is distributed according to normal distribution.In this industry,a firm with a standard normal variable value of Z = 1:
A)Has an above average price-to-earning ratio.
B)Has a below average price-to-earnings ratio.
C)Has an average price-to-earnings ratio.
D)May have an above average or below average price-to-earnings ratio.

Question

Quizplus · Accepted Answer

Since the standard normal distribution has a mean of 0 and a standard deviation of 1, a Z-score of 1 corresponds to one standard deviation above the mean. Therefore, a firm with a Z-score of 1 would have a price-to-earnings ratio that is above average compared to the rest of the industry.

The Price-To-Earning Ratio for Firms in a Given Industry Is