QUESTION 6 (20 MARKS)

Percentage changes; p/e ratios and investors' expectations

Shown below are Gamma, Inc.'s earnings per share for a four-year period, along with the per-share market price of the company's stock at each year-end. The earnings in 2015 were the highest in the company's history.

	2015	2014	2013	2012
Earnings per share	$9	$7	$6	$7
Percentage change	%	%	%	%
Year-end stock price	$77	$140	$84	$70
Price-earnings ration

6.1. Compute the percentage change in earnings per share in 2013, 2014, and 2015. (Place your answers in the spaces provided above.)

6.2. Compute the p/e ratio of stock at the end of each of the four years. (Place your answers in the spaces provided above.)

6.3. What does the p/e ratio at the end of 2015 indicate about investors' expectations of earnings per share for the coming year? Explain your reasoning.