CFA Practice Question

There are 96 practice questions for this study session.

CFA Practice Question

An analyst is evaluating a stock:

  • Last dividend on a stock: $4.
  • Current dividend growth rate: 20%. It is expected to decline over 8 years to a sustainable growth rate of 6%.
  • Required rate of return on the stock: 12%.

What is the value of this stock using the H-model?
A. $96
B. $100
C. $108
Explanation: The value of the stock = [4 x (1 + 0.06) + 4 x (8/2) x (0.20 - 0.06)] / (0.12 - 0.06) = $108.

User Contributed Comments 4

User Comment
bryn I have done this question 10x's and get 75.226.
ThePessimist It comes out right for me. Double-check your math.
chris54321 11th time lucky!!
siggarusfigs shouldn't we have to discount the sustainable growth value part by 8 years?
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