CFA Practice Question

There are 96 practice questions for this study session.

CFA Practice Question

Which of the following statements is the LEAST accurate with respect to the assumptions and the justification for the selection of the H-model?
A. The H-model is really a two stage valuation model: the sum of the present value assuming growth at the long term rate and a premium to account for the company's supernormal growth rate in the initial phase.
B. The H-model produces only an approximation of the value that would be computed if each dividend was discounted individually.
C. The H-model becomes more accurate as the extraordinary growth period becomes longer.
Explanation: The H-model becomes less accurate as the extraordinary growth period becomes longer. The H-model is an approximation model, thus resulting in a small error for each dividend forecasted. Such small errors would nevertheless accumulate to a very large error if the counting period was extended.

User Contributed Comments 3

User Comment
brandsat why not A ?
chessdude A is correct so should not be chosen.
MTenaglia darn that least accurate trick
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