Question

1. Apple’s current p/e ratio is 11. From an analytical standpoint, this means :

		That the stock is cheap
		Nothing, because a number by itself means nothing.
		The company's stock price is trading at a discount to its earnings.
		None of these

*** Two different answer on Chegg. A: That the stock is cheap B: Nothing, because a number by itself means nothing. Which one is correct?

2. The difference between stocks and bonds is:

		There is no difference since stocks and bonds are both issued by corporations.
		Stocks trade on supply and demand, while bonds trade on issue date only.
		Stocks holders are equity investors, while bondholders are creditors.
		All of these are true.

Answer 1

1)

The number by itself means nothing because P/E ratio of 11 is only an absolute figure. These ratios are used for relative or comparative valuation and is compared with industry peers to arrive at the decision on whether it is under priced or over priced in the market.

Answer is Nothing, because a number by itself means nothing.

2)

Stock holders are residual claimants on the assets of the firm after all other stakeholders are paid. They are otherwise called the Equity holders. Bond holders provide credit to the firm and will be repaid as a fixed amount periodically before the equity claimants are paid.

Answer is Stocks holders are equity investors, while bondholders are creditors.