Reference no: EM132940615

Problem 1: Assuming all other factors remain unchanged, __________ would increase a firm's price-earnings ratio.

a. an increase in the dividend payout ratio

b. a reduction in investor risk aversion

c. an expected increase in the level of inflation

d. an increase in the yield on Treasury bills

Problem 2: Statement 1:Price/sales ratios can never fall below zero, whereas both price/earnings and price/book value ratios can be negative. Statement 2: A firm with a high expected growth rate will sell for a higher price/sales ratio than a firm with a lower expected growth rate.

a.Both statements are True

b. Both statements are False

c. Only the first statement is true

d. Only the second statement is true

Problem 3: Firms with higher expected growth rates tend to have P/E ratios that are ___________ the P/E ratios of firms with lower expected growth rates.

a.higher than

b. equal to

c.lower than

d. There is not necessarily any linkage between risk and P/E ratios