BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem

MP/EPS

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Junior | Next Rank: 30 Posts
Posts: 23
Joined: Tue Apr 07, 2009 8:26 pm
Location: India

MP/EPS

by rkhicha » Tue Aug 17, 2010 11:21 pm
Last year the price per share of Stock X increased by k percent and the earnings per share of Stock X increased by m percent, where k is greater than m. By what percent did the ratio of price per share to earnings per share increase, in terms of k and m?

A. k/m %
B. (k - m) %
C. [100(k - m)] / (100 + k) %
D. [100(k - m)] / (100 + m) %
E. [100(k - m)] / (100 + k + m) %

OA later
Top
Source: — Problem Solving |
User avatar
Legendary Member
Posts: 1893
Joined: Sun May 30, 2010 11:48 pm
Thanked: 215 times
Followed by:7 members

by kvcpk » Tue Aug 17, 2010 11:57 pm
rkhicha wrote:Last year the price per share of Stock X increased by k percent and the earnings per share of Stock X increased by m percent, where k is greater than m. By what percent did the ratio of price per share to earnings per share increase, in terms of k and m?

A. k/m %
B. (k - m) %
C. [100(k - m)] / (100 + k) %
D. [100(k - m)] / (100 + m) %
E. [100(k - m)] / (100 + k + m) %

OA later
Let price per share increase by 100%. whicmeans price per share is doubled. k=100
Let earnings per share did not increase at all. m=0

Earlier ratio was p/e
now, 2p/e
perc increase in ratio is 100%

On substitution, only B and D remain.

B is obvous answer and most probably wrong. Under time pressure, we can choose D from here and move on.

Else put , K=100, m=50
B says ratio increases by 50%
which means new ratio should be 3P/2e

But actually new ratio is 2p/3e/2 = 4p/3e

Hence pick D

Hope this helps!!
"Once you start working on something,
don't be afraid of failure and don't abandon it.
People who work sincerely are the happiest."
Chanakya quotes (Indian politician, strategist and writer, 350 BC-275BC)
Top
Legendary Member
Posts: 2326
Joined: Mon Jul 28, 2008 3:54 am
Thanked: 173 times
Followed by:2 members
GMAT Score:710

by gmatmachoman » Wed Aug 18, 2010 3:16 am
Praveen was spot on... wording seems to be damn tricky...

But here goes algebraic approach:

P= stock price

the price per share of Stock X increased by k percent Pnew= P+( k/100 )* X
= P ( 1 + {K/100})

earnings per share = E
the earnings per share of Stock X increased by m percent ; Enew= E ( 1 + {m/100})

[(Pnew/Enew) - ( P/E) ]/ {P/E} --- Equation 1

Pnew/Enew = P ( 1 + {K/100}) / {E ( 1 + {m/100})}
P/E ( (100+K)/(100 +m)

Substutute the values of Pnew/Enew

you will get = [100(k - m)] / (100 + m) %

Pick D
Top
Junior | Next Rank: 30 Posts
Posts: 23
Joined: Tue Apr 07, 2009 8:26 pm
Location: India

by rkhicha » Wed Aug 18, 2010 4:50 am
Much clearer now. OA is D
Top
Post new topic Post Reply
• Page 1 of 1