US CMA Part 2 · Chapter 2 · Question 7 of 15
Ridley Motors' common stock trades at $42.00 per share and its earnings per share are $3.50. What is its price/earnings ratio?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) 12.0 times
Explanation
Price/earnings ratio = market price per share / earnings per share = $42.00 / $3.50 = 12.0 times. The inverse, EPS / price = 8.3%, is the earnings yield, which is a percentage rather than a multiple.
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