Question

T/F Question: The higher the ROE, the higher the market capitalization rate.

Answer 1

True

As ROE is retuen on equity which is calculated by dividing net income by shareholder's equity.

Where market capitalization is expected return on security.

In market capitalization all securities asset and debt are included. Equity is also included in it.

So, if higher the ROE , market capitalization also higher.

Answer 2

Explanation:

ROE (Return on Equity) measures a company's profitability relative to shareholders' equity, while the market capitalization rate (or "cap rate") reflects the expected return investors demand based on risk. They are not directly linked:

• A high ROE suggests efficient profit generation, but the cap rate depends on broader factors like risk, growth prospects, and market conditions.

• A company with high ROE could still have a low cap rate if investors perceive it as stable/low-risk (e.g., utility companies).

• 
  

Thus, higher ROE does not automatically mean a higher cap rate. The statement is false