- 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
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
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. |