Question

If the P/E ratio of a company's common stock were 12 and its earnings were $2.50 per common share, what would be the market price of the stock per share?

1) $12.50
2) $20.00
3) $30.00
4) $40.00

Answer 1

To find the market price of the stock per share, multiply the P/E ratio (12) by the earnings per share ($2.50), which results in a market price of $30.00 per share.

Step-by-step explanation:

If the P/E ratio (Price-to-Earnings ratio) of a company's common stock is 12 and its earnings were $2.50 per common share, you can calculate the market price of the stock per share by multiplying the P/E ratio by the earnings per share (EPS). The formula to calculate the stock price is:

P/E ratio x EPS = Market Price per Share

Therefore, 12 (P/E ratio) x $2.50 (EPS) gives us $30.00 as the market price per share.

Thus, the answer to the student's question is: 3) $30.00.