NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
A company with 10 crore shares outstanding has a book value of net worth of ₹2,000 crore and its shares trade at ₹500. What is its price-to-book value (P/B) ratio?
The P/B ratio is 2.5. Book value per share is ₹2,000 crore divided by 10 crore shares, which is ₹200, and the market price of ₹500 divided by ₹200 gives 2.5. Inverting the fraction would wrongly give 0.4.
- A2.5Correct
- B4
- C0.4
- D2.0
Explanation
Book value per share = 2,000 crore / 10 crore = ₹200. P/B = 500 / 200 = 2.5. The value 0.4 comes from inverting the ratio, and 4 comes from using ₹125 as book value per share, which is wrong.
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