If the earnings yield is 6.67%, the price-earnings ratio is:
A)12:1.
B)15:1.
C)6:1.
D)6.7:1.

Question

Quizplus · Accepted Answer

The earnings yield is calculated by dividing the earnings per share (EPS) by the current stock price and expressing the result as a percentage.

Earnings Yield = (EPS / Stock Price) x 100%

If the earnings yield is 6.67%, it means that for every $100 invested, the company is earning $6.67.

To calculate the price-earnings ratio (P/E Ratio), we divide the current stock price by the earnings per share.

P/E Ratio = Stock Price / EPS

To solve for the P/E Ratio, we can rearrange the formula for the earnings yield:

Earnings Yield = EPS / Stock Price

Stock Price / EPS = 1 / Earnings Yield

Stock Price / EPS = 1 / 0.0667 = 15

Therefore, the P/E Ratio is 15:1. Answer choice B is the correct answer.

If the Earnings Yield Is 6