Answer:
(C) The Firm's stock is overvalued and one should consider selling the stock
Explanation:
Price Earnings Ratio is a measure of market price of stock in relation to it's earnings. It shows how well a company's stock is valued in the market.
Price Earnings Ratio =
A high price earnings ratio would lead investors to believe that the firm's stock prices are higher than it's earnings which means the stock prices are overvalued.
This further means, the market price of those stocks is greater than their fair value and it would be beneficial to investors to sell such stocks as it would result into a gain.
Thus, a higher price earnings ratio will lead investors to infer that the firm's stock is overvalued and one should consider selling the stock.