Question

section 2.3 financial literacy
objective 1 - understand pe ratios and stock quotes
objective 2 - understand inflation and the cpi
objective 3 - compute money ratios for retirement
objective 1 - understand pe ratios and stock quotes
guided practice activity #9 - pe ratios
the price to earnings, or pe ratio, is one of the most common statistics used to assess the \value\ of a share of stock. stocks will be fully discussed in chapter 9, but for now we want to introduce the basic idea of the pe ratio.

1. compute the ratio of the price per share to the earnings per share and scale the second quantity to 1.
2. the earnings per share (eps) statistic is the ratio of the profits the company made for the previous 12 months to the number of the shares available. if there were 5.9 billion shares available, use the eps statistic to compute the profits that at&t made.

Explanation:

Step1: Calculate the ratio for question 1

The price per share is \(28.40\) and the earnings per share is \(3.55\). The ratio is \(\frac{28.40}{3.55}\).

$$ \frac{28.40}{3.55}=8 $$

Step2: Calculate the profits for question 2

The formula for earnings per share (EPS) is \(EPS=\frac{Profits}{Number\ of\ shares}\). We know \(EPS = 3.55\) and the number of shares \(n=5.9\times10^{9}\). Rearranging the formula for profits \(Profits=EPS\times Number\ of\ shares\).

$$ Profits = 3.55\times5.9\times10^{9}=3.55\times5.9\times10^{9}=20.945\times 10^{9}=20945000000 $$

Answer:

1. The ratio is \(8\).
2. The profits that AT&T made is \(20945000000\).