Question
Stock H and stock L both belong to the same industry and both use the same accounting methods for their financial statements. He has a
Stock H and stock L both belong to the same industry and both use the same accounting methods for their financial statements. He has a price-to-earnings ration of 78.27 while L has a price-to-earnings ratio of 7.08. Both ratios are based on historical trailing 12 month earnings. This difference in their valuation ratios could indicate that: (select one)
a. investors perceive stock H to have a higher level of risk compared to L
b. investors expect stock H to have higher growth in future dividends and earnings than L
c. investors expect stock H to have a lower payout ratio than stock L
d. investors perceive stock L to have lower unsystematic diversifiable risk than H
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