CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

The trailing P/E ratio will increase if the ______ increases.

I. dividend payout ratio
II. earnings retention ratio
III. required rate of return
IV. earnings growth rate
Correct Answer: I and IV

Trailing P/E = (1 - b) (1 + g) / (r - g). Note that b is the earnings retention ratio, not the payout ratio ( 1- b).

User Contributed Comments 2

User Comment
ssradja be aware that II has affect on g too. g = ROE*b. So, it may or may not increase the P/E.
Phlipsen vey good comment ssradja!
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