CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

Which statement is false regarding the two ways in which price multiples can be used?

A. The economic rationale behind the method of comparables is the law of one price.
B. A P/E ratio of 10 indicates that each dollar invested in a company generates $0.10 of earnings.
C. If a stock is relatively undervalued based on the method of comparables, it implies that it is absolutely cheaper to buy than other stocks.
Correct Answer: C

User Contributed Comments 6

User Comment
danlan2 I: economic rational behind the method of comparables is the law of one price.
broadex Why not B
rana1970 Word "absolutely" makes C incorrect. It's relatively cheaper.
gregsob2 @broadex: a P/E of 10 represents at each $1 invested generates $0.10 (10 = 1/.1)
vadfir Read the question again. It asks for FALSE statement. Word "absolutely" makes C false, therefore correct answer.
davidt876 thats what rana meant vad
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