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**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

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**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. |