CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Consider the following information about a company:

  • ROE: 15%. Growth rate: 10%. The company is expected maintain them forever.
  • Book value per share: $50.00.
  • Cost of equity: 12%.

Calculate the equity value using the single-stage residual income model.
Correct Answer: V0 = B0 + [B0 x (ROE - r) / (r - g) ]] = 50 + 50 (0.15 - 0.12)/ (0.12 - 0.1) = $125.

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