If earnings stay flat, the P/E ratio can be read as a share's:
APassing grade
BPayback period
CPacking charge
DParking permit
Answer & Solution
Correct answer: B. Payback period
1. Each year returns one unit of earnings.
2. A P/E of six needs six such years.
3. So it reads as a payback period.
_Source: OpenStax Principles of Finance, Chapter 11, Stocks and Stock Valuation._
Keep practising Stock Valuation
Browse all Stock Valuation questions for Chartered Wealth Manager, or explore more Finance topics.