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Commerce · Q701

Financial Management

Graduate and Post Graduate · Commerce · question 701

Q701

Stocks which has lower book for market ratio are considered as

A.
optimistic
B.
more risky
C.
less risky
Answer
D.
pessimistic

Answer: Option C

Solution

Answer: Option C
Solution:
Stocks which has lower book for market ratio are considered as less risky. A company whose stock is trading at a discount on its book value is not necessarily cheap. In particular, you should expect companies that have low returns on equity, high risk and low growth potential to trade at low price to book ratios.