- CFA Exams
- CFA Level I Exam
- Study Session 11. Equity Valuation (3)
- Reading 30. Residual Income Valuation
- Subject 3. The residual income valuation model
CFA Practice Question
The ROE of a firm in 2011 was 20%. The beginning book value per share was $20. Its cost of equity is 15%. Calculate residual income.
A. $1
B. $0
C. -$1
Explanation: RI = (ROE1 - r) x B0 = (0.2 - 0.15) x $20 = $1.
User Contributed Comments 1
| User | Comment |
|---|---|
| dimanyc | Since ROE>r, RI has got to be positive. Hence, A. |