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.