CFA Practice Question

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CFA Practice Question

When residual income is constantly negative, a company' stock price should ______.

A. increase
B. decrease
C. remain the same
Correct Answer: B

As a result, the dividend yield increases.

User Contributed Comments 1

User Comment
davidt876 i think it's more pertinent to mention that *earnings yield increases since this valuation method uses earnings as its cash flow.

also if the company doesn't pay a dividend then the dividend yield can't increase.
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