The market price of Friden Company's common stock increased from $15 to $18. Earnings per share of common stock remained unchanged. The company's price-earnings ratio would:

Question

Quizplus · Accepted Answer

If the market price of the stock increases and earnings per share remain the same, then the price-earnings ratio (P/E ratio) must have increased. P/E ratio is calculated by dividing the market price per share by earnings per share, so an increase in market price without a corresponding increase in earnings means the P/E ratio has increased.

The Market Price of Friden Company's Common Stock Increased from $15