CFA Practice Question

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CFA Practice Question

The value of the stock increases as the :

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.
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