Laura Is Considering Two Investments: Stock a and B

Multiple Choice

Laura is considering two investments: Stock A and B. Both stocks have a P/E ratio of 19. Stock A has an expected growth rate of 5 percent and stock B has an expected growth rate of 13 percent. Which is the better stock and why?

A) Stock B is better because it is considered to be cheaper than Stock A.
B) Stock A is better because it is expected to grow at a slower rate and therefore will be less risky than Stock B.
C) Since the P/E ratios are the same, Laura would be indifferent between the two stocks.
D) None of these statements is correct.