CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

If the return on equity of a firm is 15% and the retention ratio is 40%, the sustainable growth rate of the firm's earnings and dividends should be ______.
A. 6%
B. 9%
C. 15%
Explanation: 15% x 0.4 = 6%

User Contributed Comments 4

User Comment
copus Tricky wording...this is why it is so important to slowly read the question. This question refers to the retention ratio and not the payout ratio.
kellyyang yep, I made a big mistake to look at payout ratio! I thought this is very easy question; thus very sloppy!
bloomt The question asks for growth on Earnings AND Dividends, doesn't the entirety of RoE go into these two factors?
I understand that retention would go towards future earnings growth, but I would also think that current Payout ratio is required for Dividend Growth???
dipu617 I did the same mistake too. Its retention ratio, not payout... :-)
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