Question

After their last financial report the Bank had a price-to-earnings ratio of 20. If the annual earnings declared were $10,000,000, and there are 500,000 shares, what is the current price of the shares?

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Timmothy

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51 Answers

The price-to-earnings (P/E) ratio is the ratio of the current price per share to the earnings per share. It is calculated as:

P/E = \frac{Price \; per \; share}{Earnings \; per \; share}

Given that the Bank's P/E ratio is 20, the annual earnings declared are $10,000,000, and there are 500,000 shares, we can calculate the earnings per share as:

Earnings \; per \; share = \frac{Total \; Earnings}{Number \; of \; shares} = \frac{10,000,000}{500,000} = $20

We can now find the price per share using the P/E ratio formula:

P/E = \frac{Price \; per \; share}{Earnings \; per \; share}

Substitute the known values:

20 = \frac{Price \; per \; share}{20}

Price \; per \; share = 20 \times 20 = $400

Therefore, the current price of the shares is $\$400$.

\boxed{Price \; per \; share = \$400}

Given that the Bank's P/E ratio is 20, the annual earnings declared are $10,000,000, and there are 500,000 shares, we can calculate the earnings per share as:

We can now find the price per share using the P/E ratio formula:

Substitute the known values:

Therefore, the current price of the shares is $\$400$.

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