Question

select the correct answer. a stock has a price/earnings ratio (p/e) of 4.5. earnings per share (eps) of these stocks is 8. what is the stock’s market value? a. $14 b. $25 c. $36 d. $81 e. $40

Answer 1

Step 1) We know P/E ratio is 4.5 and EPS is $8.

Step 2) P/E ratio = Price / Earnings per share

4.5 = Price / 8

Cross multiplying, 4.5 * 8 = Price

Price = $36

Step 3) Therefore, the stock's market value is C) $36

The complete step-by-step working is:

1) P/E ratio = 4.5

2) EPS = $8

3) P/E ratio = Price/EPS

4.5 = Price/ 8

Price = 4.5 * 8

Price = $36

4) Therefore, the stock's market value is C) $36