NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
A stock's current market price is Rs 600 and its earnings per share for the last twelve months is Rs 40. What is its price-to-earnings (P/E) ratio?
The P/E ratio is 15 times. It is obtained by dividing the market price of Rs 600 by the earnings per share of Rs 40, which shows how many rupees investors pay for each rupee of annual earnings.
- A12 times
- B15 timesCorrect
- C18 times
- D24 times
Explanation
P/E = Price / EPS = 600 / 40 = 15 times. Checking backwards: 15 x 40 = 600. Using 12 or 18 would come from wrong arithmetic, and 24 has no basis in the data.
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