- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 41. Equity Valuation: Concepts and Basic Tools
- Subject 3. Present Value Models: The Dividend Discount Model
CFA Practice Question
A high proportion of the value of a growth stock comes from ______.
II. past earnings
III. PVGO (Present Value of Growth Opportunities)
I. past dividend payments
II. past earnings
III. PVGO (Present Value of Growth Opportunities)
A. III only
B. I and III
C. II and III
User Contributed Comments 5
| User | Comment |
|---|---|
| cahiz84 | any explanation? |
| mordja | Past earnings and dividends will be small compared to future potential so they are unlikely to contribute much to the valuation. The present value of future growth opportunities is the only option that makes sense |
| Lamkerst | PVGO is calculated by finding the difference between price of equity with constant growth and price of equity with no growth. |
| flpe1047 | Past dividends and earnings growth are significant for growth companies. Growth stocks are characterized by the upside of buying an undervalued stock. |
| birdperson | in a DCF valuation, all you care about is future cash flows... |