- CFA Exams
- CFA Level I Exam
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 2. Present Value Models: The Dividend Discount Model

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**CFA Practice Question**

In the dividend discount model, a factor not affecting the discount rate (k) is the ______.

B. risk premium for stocks

C. return on assets

D. expected inflation rate

A. real risk-free rate

B. risk premium for stocks

C. return on assets

D. expected inflation rate

Correct Answer: C

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**User Contributed Comments**
6

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

danlan |
Why C? |

wroger |
Return on assets has nothing to do with discount rate. |

anricus |
Cost of Equity is made up of risk free rate + nominal rate of return. (1+Nominal rate)=(1+real rate)*(1+inflation rate) and Cost of Equity (Ke) = rf + premium |

sam95 |
Because A,B and D are directly related in determining K where as C is not a part of K. |

zeiad |
key => not |

jonan203 |
C relates to financial statement analysis |