What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market/book ratio of 3.5? A) $8.57 B) $30.00 C) $85.70 D) $105.00
What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market/book ratio of 3.5? A) $8.57 B) $30.00 C) $85.70 D) $105.00
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Question:**
What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market/book ratio of 3.5?
**Options:**
- A) $8.57
- B) $30.00
- C) $85.70
- D) $105.00
**Explanation:**
To find the market price of a share, we can use the formula related to the market/book ratio:
1. **Calculate the book value per share:**
\[
\text{Book Value per Share} = \frac{\text{Total Book Value of Equity}}{\text{Total Number of Shares}}
\]
\[
\text{Book Value per Share} = \frac{3,000,000}{100,000} = $30
\]
2. **Apply the market/book ratio to find the market price per share:**
\[
\text{Market Price per Share} = \text{Book Value per Share} \times \text{Market/Book Ratio}
\]
\[
\text{Market Price per Share} = 30 \times 3.5 = $105
\]
**Correct Answer: D) $105.00**](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8ede43bb-e880-4024-8d83-4554574c0cce%2Fbabd566c-b246-4a16-9546-e11a6e8459fa%2Fwj7cey_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Question:**
What is the market price of a share of stock for a firm with 100,000 shares outstanding, a book value of equity of $3,000,000, and a market/book ratio of 3.5?
**Options:**
- A) $8.57
- B) $30.00
- C) $85.70
- D) $105.00
**Explanation:**
To find the market price of a share, we can use the formula related to the market/book ratio:
1. **Calculate the book value per share:**
\[
\text{Book Value per Share} = \frac{\text{Total Book Value of Equity}}{\text{Total Number of Shares}}
\]
\[
\text{Book Value per Share} = \frac{3,000,000}{100,000} = $30
\]
2. **Apply the market/book ratio to find the market price per share:**
\[
\text{Market Price per Share} = \text{Book Value per Share} \times \text{Market/Book Ratio}
\]
\[
\text{Market Price per Share} = 30 \times 3.5 = $105
\]
**Correct Answer: D) $105.00**
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