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Basic Question 2 of 11
Companies with higher expected growth opportunities usually sell for ______.
B. higher P/E ratio
C. a price that is independent of the P/E ratio
A. lower P/E ratio
B. higher P/E ratio
C. a price that is independent of the P/E ratio
User Contributed Comments 6
| User | Comment |
|---|---|
| sarath | Higher growth means higher "g" so lower denominator and higher P/E ratio. |
| francesca | higher expected growth opportunities doesn't imply a higher retention rate also? therefore a lower numerator? |
| mrushdi | Higher the growth rate, people are willing to pay more for a $1 of EPS. |
| thekobe | higher retention rate, so a lower dividend rate |
| khalifa92 | anything deducted; growth and payout ratio, from the denominator, increases P/E. |
| MathLoser | You guys are making simple problem becomes complicated. This is common sense, don't waste your time investigating the formula. |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables
calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value
CFA® 2025 Level I Curriculum, Volume 3, Module 8.