- CFA Exams
- CFA Level I Exam
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation
- Subject 2. The dividend discount model

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**CFA Practice Question**

Which of the following is least accurate with respect to the difference between expected holding period return and required rate of return?

A. Required rate of return is based on risk and the concept of opportunity cost.

B. Holding period return assumes all cash flows are reinvested at the initial required level of return.

C. Holding period return is not annualized.

**Explanation:**Holding period return DOES NOT assume that all cash flows are reinvested at the initial required level of return. When computing expected holding period return, the analyst can make any assumption with respect to the reinvestment rate of any interim cash flows.

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