Question

Jones Company earns $6 per share. Today the stock is selling at $48. The company pays...

Jones Company earns $6 per share. Today the stock is selling at $48. The company pays an annual dividend of $.83. Calculate (A) price earnings ratio, and (B) yield on the stock (to the nearest tenth percent.)

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Answer #1

Solution:

(A) Calculation of Price Earnings Ratio :

The formula for calculating the Price earnings Ratio is

= Market Price per share / Earnings price per share

As per the information given in the question we have

Market Price per share = $ 48     ;      Earnings price per share = $ 6

The Price Earnings Ratio = 48 / 6 = 8

Thus the Price Earnings Ratio = 8

(B) Calculation of Yield on Stock :

The formula for calculating the Yield on the stock is

= Annual Dividend / Market Price per share

As per the information given in the question we have

Annual Dividend = $ 0.83    Market Price per share = $ 48     ;    

Thus the yield of the stock = 0.83 / 48 = 0.0173

= 1.73 %

Thus the yield on stock = 1.7 % ( when rounded off to the nearest tenth )

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