- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 3. Equity Instruments and the Time Value of Money

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**CFA Practice Question**

The value of the stock increases as the :

II. required rate of return decreases.

III. required rate of return increases.

I. dividend growth rate increases.

II. required rate of return decreases.

III. required rate of return increases.

A. I and II

B. I and III

C. II only

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**User Contributed Comments**
6

User |
Comment |
---|---|

stevelaz |
Would you say Value or Price ??!! |

volkovv |
in this context value or price is the same thing |

kiselevroman |
Don't we have a contradiction: Div growth rate increase, payout ratio increase, g=ROE*b decrease, so P=D/(r-g) decrease? Am I right? |

leftcoast |
Kiselevroman: Div growth rate increases when dividend payout ratio decreases: g=ROE*(1-dividend payout ratio) |

harrybay |
Can we agree that an increase in the growth rate of dividend doesn't necessarily imply growth in EPS, in which case the value of the stock doesn't increase? |

lighty0770 |
In a closed DDM function, which I believe is what they are referencing, the decreased R or increased G reduces the denominator which increases the value. |