The following information is available for Jase Company: $\begin{array}{lr}
\text { Market price per share of common stock } & \$ 25.00 \
\text { Earnings per share on common stock } & \$ 1.25
\end{array}$
Which of the following statements is correct?
A) The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of the year.
B) The price-earnings ratio is 5% and a share of common stock was selling for 5% more than the amount of earnings per share at the end of the year.
C) The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of the year.
D) The market price per share and the earnings per share are not statistically related to each other.

Question

The following information is available for Jase Company: $\begin{array}{lr}
\text { Market price per share of common stock } & \$ 25.00 \
\text { Earnings per share on common stock } & \$ 1.25
\end{array}$ 
 Which of the following statements is correct?
A) The price-earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of the year.
B) The price-earnings ratio is 5% and a share of common stock was selling for 5% more than the amount of earnings per share at the end of the year.
C) The price-earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of the year.
D) The market price per share and the earnings per share are not statistically related to each other.

Quizplus · Accepted Answer

The price-earnings ratio (P/E ratio) is calculated by dividing the market price per share by the earnings per share (EPS). In this case, it is $25.00 / $1.25 = 20. This means the stock was selling for 20 times the earnings per share, which matches option A.