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Basic Question 11 of 16
In the dividend discount model, a factor not affecting the discount rate (k) is the ______.
B. risk premium for stocks
C. return on assets
D. expected inflation rate
A. real risk-free rate
B. risk premium for stocks
C. return on assets
D. expected inflation rate
User Contributed Comments 6
| User | Comment |
|---|---|
| danlan | Why C? |
| wroger | Return on assets has nothing to do with discount rate. |
| anricus | Cost of Equity is made up of risk free rate + nominal rate of return. (1+Nominal rate)=(1+real rate)*(1+inflation rate) and Cost of Equity (Ke) = rf + premium |
| sam95 | Because A,B and D are directly related in determining K where as C is not a part of K. |
| zeiad | key => not |
| jonan203 | C relates to financial statement analysis |
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Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2025 Level I Curriculum, Volume 3, Module 8.