A price-earnings ratio or P/E ratio is calculated as a firm’s share price compared to the income or profit earned by the firm per share. Generally, a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E ratio. The accompanying table shows a portion of companies that comprise the Dow Jones Industrial Average (DJIA) and their P/E ratios as of May 17, 2012 (at the time data were retrieved, the P/E ratio for one firm on the DJIA, Bank of America, was not available). The entire data set, labeled PE_Ratio, can be found on the text website.
Company ... P/E Ratio
3M (MMM) .... 14
Alcoa (AA) .... 24
Walt Disney (DIS) . 14
a. Calculate and interpret the 25th, 50th, and 75th percentiles.
b. Construct a box plot. Are there any outliers? Is the distribution symmetric? If not, comment on its skewness.