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

A stock is trading at ₹800 and the company's earnings per share (EPS) for the latest year are ₹40. The company pays a dividend of ₹10 per share. What are the price-earnings ratio and the dividend yield?

The P/E ratio is 20 and the dividend yield is 1.25%. P/E is price divided by EPS (800/40), while dividend yield is dividend divided by price (10/800). The 25% figure would be the payout ratio, not the yield.

  1. AP/E of 20 and dividend yield of 1.25%Correct
  2. BP/E of 20 and dividend yield of 25%
  3. CP/E of 80 and dividend yield of 1.25%
  4. DP/E of 4 and dividend yield of 5%

Explanation

P/E = 800 / 40 = 20. Dividend yield = dividend / price = 10 / 800 = 1.25%. The 25% figure is the payout ratio (10/40), not the yield, and 80 comes from dividing price by dividend.

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