[h=2]Using the Price-To-Earnings Ratio formula. Please help!![/h]

I posted this morning but I can't see it so I'm trying again.

There are 2 companies, Alpha Oil with a share price of 5.00 dollars and Omega Oil with a share price of 10.00 dollars. Michael owns 500 Alpha Oil shares and 250 Omega Oil Shares.

Alpha Oil shares increase by 10% and the price to earnings ratio remains at 10.

Omega Oil increases by 8% and the price to earnings ratio reduces from 10 to 8.

What is the expected gain to Michael?

Equation: Price to Earnings Ratio= stock price per share/earnings per share

Alpha Oil: 10=5.00/0.50=10

Omega Oil: 8=10.00/0.80=12.50

The textbook answer is 612.50 and I do not know how they arrived at this??

The way I worked it was:

Alpha Oil increased by 0.50x500 shares= 250

Omega Oil increased by .8x250 shares = 200

Therefore: 200+250=$450.

Am I missing something??

Please help!!

There are 2 companies, Alpha Oil with a share price of 5.00 dollars and Omega Oil with a share price of 10.00 dollars. Michael owns 500 Alpha Oil shares and 250 Omega Oil Shares.

Alpha Oil shares increase by 10% and the price to earnings ratio remains at 10.

Omega Oil increases by 8% and the price to earnings ratio reduces from 10 to 8.

What is the expected gain to Michael?

Equation: Price to Earnings Ratio= stock price per share/earnings per share

Alpha Oil: 10=5.00/0.50=10

Omega Oil: 8=10.00/0.80=12.50

The textbook answer is 612.50 and I do not know how they arrived at this??

The way I worked it was:

Alpha Oil increased by 0.50x500 shares= 250

Omega Oil increased by .8x250 shares = 200

Therefore: 200+250=$450.

Am I missing something??

Please help!!

Last edited by a moderator: