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A common interpretation is that firms with high price to earnings ratios should be:
AGrowth companies
BGrocery companies
CGranting companies
DGrading companies
Answer & Solution
Correct answer: A. Growth companies
1. Expectations are built into the price.
2. Investors pay ahead for growth.
3. They should be growth companies.
_Source: OpenStax Principles of Finance 2e, Chapter 11, Stocks and Stock Valuation._
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