- 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
Companies with higher expected growth opportunities usually sell for ______.
B. higher P/E ratio
C. a price that is independent of the P/E ratio
A. lower P/E ratio
B. higher P/E ratio
C. a price that is independent of the P/E ratio
Correct Answer: B
User Contributed Comments 6
| User | Comment |
|---|---|
| sarath | Higher growth means higher "g" so lower denominator and higher P/E ratio. |
| francesca | higher expected growth opportunities doesn't imply a higher retention rate also? therefore a lower numerator? |
| mrushdi | Higher the growth rate, people are willing to pay more for a $1 of EPS. |
| thekobe | higher retention rate, so a lower dividend rate |
| khalifa92 | anything deducted; growth and payout ratio, from the denominator, increases P/E. |
| MathLoser | You guys are making simple problem becomes complicated. This is common sense, don't waste your time investigating the formula. |