This question-specific review guide is tied to the answer reasoning for a PracticeTestVault item. Use it after you answer the question so the review stays focused on what the prompt actually tested.
What this question is testing
Objective: Equity Investments
Prompt focus: A company has a price-to-earnings ratio of 18 and a return on equity of 15 percent. If the price-to-book ratio is the product of the P/E ratio and ROE, the price-to-book ratio is:
Why the correct answer works
2.7
Correct. P/B equals P/E times ROE, so 18 times 0.15 equals 2.7.
Why the tempting wrong answer fails
Incorrect. This figure does not result from multiplying the P/E ratio by ROE.
Plain-language takeaway
The price-to-book ratio can be expressed as the P/E ratio multiplied by ROE. Here 18 times 0.15 equals 2.7.
Simple analogy
Think of equity investments like following a short checklist: identify the clue, confirm the rule, and then make the move that fits this exact scenario.
How to review it before a retake
- Underline the command word and name what the question is asking before rereading the choices.
- Compare the correct answer against the closest distractor and write the exact detail that separates them.
- Retest this objective with a fresh question without looking at the rationale first.