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The market price of Friden Company's common stock increased from $15 to $18. Earnings per share of common stock remained unchanged. The company’s price-earnings ratio would:

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Answer:

Increase

Explanation:

The price-earnings ratio (PER) is defined as the ratio between the common stock market price and the earnings per share (EPS).

For any given EPS:

Price-earnings ratio at the initial price:

[tex]PER_i = \frac{\$15}{EPS}[/tex]

Price-earnings ratio at the final price:

[tex]PER_f = \frac{\$18}{EPS}[/tex]

Therefore, for any EPS:

[tex]PER_f >PER_i[/tex]

The company’s price-earnings ratio would increase