Which of the following is/are true if a firm has a required rate of return equal to the ROE?I. The amount of earnings retained by the firm does not affect market price or the P/E. II. The firm can increase market price and P/E by increasing the growth rate. III. The P/E ratio is inversely proportional to the ROE of the firm.

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Question:

Which of the following is/are true if a firm has a required rate of return equal to the ROE?I. The amount of earnings retained by the firm does not affect market price or the P/E. II. The firm can increase market price and P/E by increasing the growth rate. III. The P/E ratio is inversely proportional to the ROE of the firm.

A.

Only (I) above

B.

Both (I) and (II) above

C.

Both (I) and (III) above

D.

Both (II) and (III) above

Answer» d. Both (II) and (III) above

Note: The above multiple-choice question is for all general and Competitive Exams in India.