- CFA Exams
- CFA Level I Exam
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 2. Present Value Models: The Dividend Discount Model

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**CFA Practice Question**

Which of the following will increase a company's growth rate of earnings?

B. Increasing its return on equity

C. Decreasing its retention rate

A. Increasing its dividend payout ratio

B. Increasing its return on equity

C. Decreasing its retention rate

Correct Answer: B

The growth rate can be computed as the product of ROE and 1 minus the dividend payout ratio.

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**User Contributed Comments**
4

User |
Comment |
---|---|

mrushdi |
HERE PAYOUT RATIO MOVES ADVERSLY |

thekobe |
g=rr*roe rr=1-dpr |

tochiejehu |
tanks guys u d bests |

chesschh |
a & c are the same, so B |