CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

The leading P/E ratio will increase if the ______ increases.

I. dividend payout ratio
II. earnings retention ratio
III. required rate of return
IV. earnings growth rate
A. I and IV
B. I and III
C. II and IV
Explanation: Leading P/E = (1 - b) / (r - g). Note that b is the earnings retention ratio, not the payout ratio ( 1 - b).

User Contributed Comments 2

User Comment
mbuechs2 And g = ROE x retention rate. What if ROE is very high? It should be better to retain the earnings in this case, correct?
cminor For these q's just plug em in the formula to see their effect (start with a base example like a payout ratio of .50, r of .10, g of .03
You need to log in first to add your comment.