Answer:
4.92 cents
Step-by-step explanation:
The Price to Earnings or P/E is the ratio of the price of its stock to its yearly earnings expressed as dividends.
The price of a stock is $36 and it's earnings are $3.00
This means the price to earnings ratio,
P/E = 36/3 = 6
Let us express this ratio as percentage. This becomes
36/3 ×100 = 1200%
This means the ratio of price to earnings = 1200%
For an increase of 20%, the ratio of price to earnings will be = 1200 + 20 = 1220%.
Let x be the the value of earnings that would increase the ratio by 20%
36/3 × 100 = 1200%
36/x × 100 = 1220℅
3600/x = 1220
x = 3600/1220 = $2.9508
The amount by which the earnings must decrease in order that the P/E ratio increases by 20% will be
$3 - $2.9508 = $0.0492.
Converting to cents, we multiply by 100. It becomes
0.0492×100 = 4.92 cents
