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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

Shares of Kaveri Ltd. trade at Rs 600 and the company's earnings per share is Rs 40. The company pays a dividend of Rs 12 per share. What are the P/E ratio and the dividend payout ratio?

The P/E ratio is 15, found by dividing the Rs 600 price by Rs 40 EPS. The dividend payout ratio is 30%, found by dividing the Rs 12 dividend by the Rs 40 EPS.

  1. AP/E 15; payout 30%Correct
  2. BP/E 15; payout 20%
  3. CP/E 50; payout 30%
  4. DP/E 20; payout 33.3%

Explanation

P/E = 600/40 = 15. Payout ratio = dividend/EPS = 12/40 = 30%. Payout 20% would wrongly divide by something else, and P/E 50 inverts dividend and price confusion (600/12).

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