Laura is considering two investments: Stock A and B. Both stocks have a P/E rati

Question

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratios of 19. Stock A has an expected growth rate of 5% and stock B has an expected growth rate of 13%. Which is the better stock and why? A.) Stock B is better because it is considered to be cheaper than stock A. B.) Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B. C.) Since the P/E ratios are the same, Laura would be indifferent between the two stocks. D.) None of these statements are correct.

Explanation / Answer

C.) Since the P/E ratios are the same, Laura would be indifferent between the two stocks.

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