How do the price/earnings (P/E) ratio and the market/book (M/B) ratio give an idea of the risk and return of the company?
The P/E ratio measures the amount that investors are willing to pay for each dollar of a company's earnings; the higher the P/E ratio, the greater the confidence of investors.
The M/B ratio allows an evaluation of how investors view the company's performance, relating the market value of the company's shares to its book value.
Companies that are expected to have high returns relative to their risk generally sell at higher M/B multiples.
The P/E and M/B ratios are commonly evaluated through a representative sample to obtain an idea of the risk and return of the company compared to similar firms.

a) Only statements I, II, and IV are correct.
b) Only statements II, III, and IV are correct.
c) All statements are correct.
d) Only statements I and III are correct.