Shown below is a correlation table showing correlation coefficients between stock price, earnings per share (EPS), and the price/earnings (P/E) ratio for a sample of 19 publicly traded companies. Which of the following statements is false?
A) EPS is the best predictor of stock price.
B) The strongest correlation is between EPS and stock price.
C) There is a weak negative association between P/E and EPS.
D) PE is the best predictor of stock price.
E) The weakest correlation is between P/E and EPS.

Question

Shown below is a correlation table showing correlation coefficients between stock price, earnings per share (EPS), and the price/earnings (P/E) ratio for a sample of 19 publicly traded companies. Which of the following statements is false? 
A) EPS is the best predictor of stock price. 
B) The strongest correlation is between EPS and stock price. 
C) There is a weak negative association between P/E and EPS. 
D) PE is the best predictor of stock price. 
E) The weakest correlation is between P/E and EPS.

Quizplus · Accepted Answer

None of the other statements are false. However, the statement "EPS is the best predictor of stock price" is not supported by the given correlation coefficients. The correlation coefficient between EPS and stock price is strong, but the coefficient between P/E and stock price is even stronger, indicating that P/E may be a better predictor of stock price.

Shown Below Is a Correlation Table Showing Correlation Coefficients Between