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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)

A stock has a market price of Rs 600 and earnings per share of Rs 30. If the company's EPS is expected to remain unchanged, what is its price-to-earnings (P/E) ratio, and what does the earnings yield equal?

P/E is 20 because Rs 600 divided by Rs 30 EPS equals 20. The earnings yield is the reciprocal, 30 divided by 600, which is 5 percent.

  1. AP/E 20; earnings yield 5%Correct
  2. BP/E 20; earnings yield 20%
  3. CP/E 5; earnings yield 20%
  4. DP/E 18; earnings yield 5.5%

Explanation

P/E = 600/30 = 20. Earnings yield is the inverse: 30/600 = 5%. Other options mix up the ratio and its inverse or use incorrect figures.

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