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Question

Which of the following best describes the primary reason for the greater volatility of the earnings

Accepted Answer

The earnings multiplier is more sensitive to changes in the spread between the required return and growth.

Answer

The price/earnings ratio is less insulated from accounting distortions than is the EPS figure.; i.e. it is harder to "normalize."

Answer

None of these answers is correct.

Answer

The EPS figure is subject to a deleveraging effect caused by changes in the capital structure.

Answer

The earnings multiplier is more sensitive to fluctuations in the equity markets than is the EPS figure; i.e. the earnings multiplier is "forward looking."

Answer

The price/earnings ratio is more sensitive to increases in a companies dividends.

Which of the following best describes the primary reason for the greater volatility of the earnings multiplier of a stock market series compared to the earnings per share (EPS) for the same series? Choose the best answer.

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