- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 8. Equity Valuation: Concepts and Basic Tools
- Subject 5. Multiplier Models
CFA Practice Question
The P/E ratios of most U.S. companies fall into which of the following categories?
B. 10-20
C. 20-30
D. 30-40
E. 40-50
A. 0-10
B. 10-20
C. 20-30
D. 30-40
E. 40-50
Correct Answer: B
The S&P 500 and the Dow Jones Industrial Average, which represent over 500 companies, generally sell at P/E ratios of between 12 and 18 historically (and occasionally above or below these numbers).
User Contributed Comments 14
User | Comment |
---|---|
DannyZhou | How would I know this? Wild guess? Or is it supposed to be common knowledge? |
raymondg | Its common knowledge |
DS12 | It is mentioned in the book. |
acemaj | Both. |
johntan1979 | Don't be ignorant. You want to be a CFA, so by right you should know these things! |
gill15 | It's a pretty valid question. If I'm writing this exam I would want to know where to get this type of information so I could get it right. And Yeah its in the text] |
kritan | johntan; and you should know you that one never IS a CFA, but a CFA charterholder... |
farhan92 | B or C make the most sense (without reading the book) |
Teeto | One can think in terms of required return on equity. 5%-10% (or P/E 10-20) is the most reasonable one. |
houstcarr | question was actually referring to US companies in general, which do not trade in that range on average. but if referring to the large caps, then yes. take a look at pink sheets |
Inaganti6 | Lol John Tan you need to brush up on VII of ethics |
Logaritmus | Nowadays 20-30 is a P/E ratio for most US Stocks (thanks to negative real interest rates). On the other hand, if interest rates are higher you'll most likely have lower P/E ratio i.e. in Emerging Markets (Turkey, Russia) most companies now have P/E < 10. |
sshetty2 | AN is trying to say that we should be reading the textbook and not relying solely on their study notes; which is something i have not been doing ffs. |
pigletin | you should know this fact. but it will never be tested in cfa exam |