CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

An analyst gathers the following data about a company:

Stock price: $40
Stock's required return: 12%
Consensus estimate of next year's dividend: $2.00
Company's return on equity: 10%

Using the dividend discount model, the company's dividend payout ratio is closest to ______.
A. 20%
B. 30%
C. 70%
Explanation: $40 = $2 / (0.12 - g)
g = 7%
g = ROE x RR
RR = 7 / 10 = 0.70
Payout ratio = 1 - RR = 1 - 0.70 = 0.30 = 30%

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