CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

The P/BV ratio is positively related to ______.

I. dividend payout ratio
II. return on equity
III. required rate of return
IV. earnings growth rate
Correct Answer: II only

P/BV = (ROE - g) / (r - g). Empirical studies have also proved a strong positive relationship between the company's long-term growth and its P/B multiple but the relationship is not indicated by the equation.

User Contributed Comments 4

User Comment
mysking why not? as g = b x ROE, if P/B is proportional to ROE then it is also proportional to g.

imply P/B always positively correlated to the growth rate?
ehc0791 From the equation, it depends on ROE and r, if ROE > r, P/BV has positive relationship, otherwise, negative; because g is subtracted from both numerator and denominator
Lavay True
sahilb7 Interesting!
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