Last year,Bennett's had a PE ratio of 5.4.This year,the PE ratio is 4.9.Based on this information,it can be stated with absolute certainty that
A)the price per share increased.
B)the earnings per share decreased.
C)either the price per share,the earnings per share,or both,changed.
D)investors are receiving a lower rate of return this year.
E)investors are paying a lower price for each share of stock purchased.

Question

Quizplus · Accepted Answer

The PE ratio is calculated by dividing the price per share by the earnings per share. Therefore, a decrease in the PE ratio could be due to a decrease in the price per share and/or an increase in the earnings per share. It is not possible to determine with certainty which one changed or if both changed without additional information. Therefore, the only certain answer is that either the price per share, the earnings per share, or both changed.

Last Year,Bennett's Had a PE Ratio of 5