The correct answer is: C. high growth prospect.
A high price-to-earnings (P/E) ratio indicates that investors are willing to pay a premium for a company’s stock because they believe the company will have strong earnings growth in the future. This can be due to a number of factors, such as the company’s products or services being in high demand, the company having a strong competitive position, or the company having a history of strong earnings growth.
A low P/E ratio, on the other hand, indicates that investors are not as confident in the company’s future earnings growth. This could be due to a number of factors, such as the company’s products or services being in low demand, the company having a weak competitive position, or the company having a history of weak earnings growth.
It is important to note that a high P/E ratio does not guarantee that a company will have strong earnings growth in the future. However, it does indicate that investors are confident in the company’s future prospects.
Here is a brief explanation of each option:
- A. low dividends paid. A high P/E ratio does not necessarily mean that a company pays low dividends. In fact, some companies with high P/E ratios pay high dividends. The amount of dividends a company pays is determined by a number of factors, such as the company’s financial position, its dividend policy, and its investment opportunities.
- B. high risk prospect. A high P/E ratio does not necessarily mean that a company is a high-risk investment. In fact, some companies with high P/E ratios are relatively low-risk investments. The riskiness of an investment is determined by a number of factors, such as the company’s financial position, its industry, and its management team.
- D. high marginal rate. A high P/E ratio does not necessarily mean that a company has a high marginal tax rate. The marginal tax rate is the tax rate that a company pays on its next dollar of income. The marginal tax rate is determined by a number of factors, such as the company’s income, its tax bracket, and its state and local taxes.