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The price-earnings ratio (PE) is often used as a gauge of “how high” valuations are for...

The price-earnings ratio (PE) is often used as a gauge of “how high” valuations are for individual companies and markets. Suppose you are looking at stock market indices for two emerging countries, Macronia and Fiscalia. You notice that PE in Macronia is higher than in Fiscalia.

Assuming that PE is reflecting fundamentals in each of the countries, what could explain this difference?

The market in Macronia is riskier than the one in Fiscalia.

Corporate earnings are higher in Fiscalia.

The projected growth rate of earnings is higher in Fiscalia.

On average, listed firms in Macronia pay out a greater portion of earnings in dividends than do listed firms in Fiscalia.

Productive investments are more profitable in Macronia.

None of the above

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Answer #1

Correct Answer is Productive Investments are More Profitable In Macronia.

The price-earnings ratio (PE) is often used as a gauge of “how high” valuations are for individual companies and markets. Suppose you are looking at stock market indices for two emerging countries, Macronia and Fiscalia. You notice that PE in Macronia is higher than in Fiscalia.

Assuming that PE is reflecting fundamentals in each of the countries, Means Productive investments are more profitable in Macronia. As PE Being A Multiple.

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