Series 7  General Securities Representative Exam
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XYZ company common stock is trading at $88 per share. Earnings per share is $8.00. XYZ then announces a 2:1 stock split. Which TWO of the following are TRUE AFTER the split occurs?
The P/E ratio is 10, The EPS decreases to $4
A
The P/E ratio is 10, The EPS stays at $8
B
The P/E ratio is 5, The EPS stays at $8
C
The P/E ratio is 5, The EPS decreases to $4
D
Explanations
The P/E ratio is 10, The EPS decreases to $4. The EPS is cut in half because there are twice as many outstanding shares. The stock price goes to 44.00. 44 divided by 4 = 10 P/E ratio. The P/E ratio stays the same. Price per share divided by earnings per share.
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