vaivish1723 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) %

Responding to a pm: (super detailed steps)

When you have variables in the question and variables in the options, one method of getting to the answer is by assuming values for the variables. If a question says: x is greater than y/3 but less than y/2. Which of the following relations must hold?

(A) y < x < 2y

(B) 2y < 6x < 3y

...

...

One way of doing this is assuming some value for y. Say, y = 60. So x is greater than 20 but less than 30. Say x could be 25.

Not put y = 60 and x = 25 in the options:

(A) y < x < 2y -----> 60 < 25 < 2*120 ( does not hold)

(B) 2y < 6x < 3y ------> 2*60 < 6*25 < 3*60 (holds so could be the answer)

Mind you, you need to check every option to ensure that the relation holds for only one option. If it holds for more than one options, you will need to check for some other values too.

The point is that we assume values and then plug them in the options to see which relation works.

We can do this question using the same concept.

Last Year:

Price per share (PPS) increased by k%. Let's say k = 20. So if the price was 100, it increased by 20% to become 120 (New PPS).

Earnings per share increased by m%. Let's say m = 10 (m must be less than k). So if earnings per share was also 100, it increased by 10% to become 110 (New EPS).

By what percent did the ratio of price per share to earnings per share increase?

Ratio of PPS/EPS was 100/100 = 1

New ratio = New PPS/ New EPS = 120/110 = 1.0909

%Increase = [(1.0909 - 1)/1] * 100 = 9.09%

Now, in the options, put k = 20, m = 10

Only (D) will give you 9.09%. Let me show you calculations of some of the options.

B. (k – m) %

(20 - 10)% = 10% (Not the answer)

C. [100(k – m)] / (100 + k) %

[100(20 - 10)]/(100 + 20) % = 1000/120 % = 8.3% (Not the answer)

D. [100(k – m)] / (100 + m) %

[100(20 – 10)] / (100 + 10) % = 1000/11 % = 9.09% (Answer)

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Karishma

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