Daily quiz-25 (04/04): Print your name and ID in BLOCK letters.
The Price-Earnings ratio or the P/E of a company = Market price of the share/Profits
or Earnings per share (before dividend payout).
Q1. Philly Cheese Corporation had a P/E ratio of 20, retained earnings of $1.50 per
share and a dividend of $.50. What was its dividend yield (dividend/market price)?
Ans: E = 1.50+0.50 =2.0, P = 2x20 = 40, dividend yield = 0.50/40 = 1.25%
Q2. In 2008, CDZ Corporation had total earnings of $500 million and CDZ retained 30
percent of its earnings for future investments. If the price of a share of CDZ stock is
$70 and if 80 million shares of its stock were outstanding, then what is the priceearnings ratio?
Ans: Earnings per share = 500/80 = 6.25, P/E = 70/6.25 = 11.2 (not all information
provided is relevant)
Q3. From a household’s point of view, a Savings Account is a financial asset. Does a
Savings Account have more in common with a company bond or a company stock?
Ans: Savings Account has more in common with a company bond because like a bond,
it pays a constant interest rate at fixed points of time.