The correct answer is: B. high risky firms.
A low price-to-earnings (P/E) ratio is a sign that investors are expecting a lower future return from a company than they are from other companies. This can be due to a number of factors, including the company’s risk profile.
High-risk companies are often seen as more volatile, meaning that their stock prices can fluctuate more than those of low-risk companies. This volatility can make high-risk stocks more attractive to investors who are looking for the potential for higher returns, but it can also make them more risky for investors who are looking for stability.
As a result, high-risk companies tend to have lower P/E ratios than low-risk companies. This is because investors are willing to pay less for a share of a high-risk company, since they expect a lower return.
The other options are incorrect because:
- Low dividends paid do not necessarily mean that a company is risky. A company may choose to reinvest its profits back into the business, rather than paying dividends to shareholders.
- High marginal rate does not necessarily mean that a company is risky. A company’s marginal rate is the tax rate it pays on its last dollar of income. A high marginal rate can be due to a number of factors, including the company’s size and industry.
I hope this explanation is helpful. Please let me know if you have any other questions.