a. The price to earnings (P/E) ratio is a popular technique in stock valuation, which could serve as a guideline for acquisition purposes.

Evaluate the THREE (3) benefits and THREE (3) drawbacks of the P/E ratio in stock valuation. In addition, justify why do some companies have higher P/E ratios compared with their peers within the same business sector. (14 marks)

b. Preferred stock is a hybrid security because it combines features of common stocks and bond. Describe THREE (3) similarities of preferred stock to bond. (6 marks)