A stock trades at $150 and its earnings per share are $7.50. What is the P/E ratio?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

A stock trades at $150 and its earnings per share are $7.50. What is the P/E ratio?

Explanation:
The price-to-earnings ratio shows how many dollars investors are willing to pay for one dollar of earnings. It’s calculated by dividing the price per share by the earnings per share. Here, 150 divided by 7.50 equals 20, so the P/E ratio is 20. Quick check: 20 times 7.50 = 150, which matches the price. Thus, the correct value is 20.

The price-to-earnings ratio shows how many dollars investors are willing to pay for one dollar of earnings. It’s calculated by dividing the price per share by the earnings per share.

Here, 150 divided by 7.50 equals 20, so the P/E ratio is 20. Quick check: 20 times 7.50 = 150, which matches the price.

Thus, the correct value is 20.

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