Question

If a stock's P/E ratio is 13.5 at a time when earnings are $3 per year and the dividend payout ratio is 40%, what is the stock's current price?

Answer 1

Answer:

Price of share = $40.50

Explanation:

P/E ratio describes the price to earnings ratio.

Provided if P/E ratio = 13.5

And Earnings per share = $3 per share.

That means,

$\frac{Price}{Earnings} = 13.5$

$\frac{Price}{3} = 13.5$

Price = 13.5 $\times$ 3 = $40.5

Therefore, it is not dependent on dividend payout ratio, and the price = $40.50