Asked by Abdulaziz Bin Dharman on Jun 15, 2024
Verified
The price/earnings ratio is affected by the amount of risk that investors are willing to take.
Price/Earnings Ratio
A valuation ratio of a company's current share price compared to its per-share earnings, indicating the dollar amount investors will pay for $1 of earnings.
Investors
Individuals or entities that allocate capital with the expectation of receiving financial returns.
- Comprehend the factors affecting earnings per share and price/earnings ratio.
Verified Answer
AK
Adelina KorcariJun 21, 2024
Final Answer :
True
Explanation :
The price/earnings ratio reflects the market's perception of a company's riskiness and growth prospects. A higher perceived risk will result in a lower price/earnings ratio, while a lower perceived risk will result in a higher price/earnings ratio. This is because investors demand a higher return for taking on higher risk. Therefore, the price/earnings ratio is affected by the amount of risk that investors are willing to take.
Learning Objectives
- Comprehend the factors affecting earnings per share and price/earnings ratio.
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