CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Since D/P = (r - g) / (1 + g), and P/CF = (1 + g) /(r - g), therefore D/P = CF/P. True or False?
Correct Answer: False

The g in the P/CF formula is the expected growth rates of future cash flows, not the dividend growth rate.

User Contributed Comments 8

User Comment
HenryQ Good question!
ikaneng which also means that if the 2 g's are equal, then D/P = CF/P?
gnacinka dividend is a kind of CF, but different that they mean
NIKKIZ Mathematically, 1+g/r-g is not equal to r-g/1+g...
NIKKIZ Or am I incorrect?
sogah very good question lol
endurance KA-boom ... very useful for understanding the concepts
JMBrown NIKKIZ,1+g/r-g is P/CF and they are comparing D/P and CF/P using the reciprocal. So it would actually be D/P=r-g/1+g and CF/P=r-g/1+g only with varying definitions for g.
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