The price to earnings ratio,also called the P/E ratio of a stock is a measure of the price of a share relative to the annual net income per share earned by the firm.Suppose the P/Es for a firm's common stock during the past four quarters be 10,12,15,and 11,respectively.The standard deviation of the P/E ratio over the four quarters is:
A)1.87
B)2.16
C)3.50
D)4.67

Question

Quizplus · Accepted Answer

To find the standard deviation of the P/E ratio over the four quarters, we first need to find the average P/E ratio:

(10 + 12 + 15 + 11)/4 = 12

Next, we need to find the variance of the P/E ratio:

[ (10 - 12)^2 + (12 - 12)^2 + (15 - 12)^2 + (11 - 12)^2 ] / 4
= [(-2)^2 + 0^2 + (3)^2 + (-1)^2] / 4
= 14 / 4
= 3.5

Finally, we take the square root of the variance to get the standard deviation:

sqrt(3.5) ≈ 1.87

Therefore, the best choice is (B) 2.16.

The Price to Earnings Ratio,also Called the P/E Ratio of a Stock