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Basic Question 0 of 15
The P/CF ratio is negatively related to ______.
II. future growth rate of cash flows
III. required rate of return
I. dividend payout ratio
II. future growth rate of cash flows
III. required rate of return
User Contributed Comments 3
| User | Comment |
|---|---|
| guipo | g = RR X ROE with RR = 1 - PO so I would say that as P/CF is positively related to g and g is negativeley related to PO then P/CF is negatively related to PO... Correct? |
| NIKKIZ | Guipo - that's what I thought too... |
| davidt876 | completely agree guipo. even the P/E formula from earlier: P0/E0 = (1-b)(1+g)/(r-g) where b is retention ratio... suggests P/E has a positive relationship with the payout ratio - but that makes 0 sense when you consider the knock on effect on growth. it can maybe impact the short term P/E, where income hungry investors bid up a stock's price on news of a 'higher than expected' payout.. but then on the XD the value of the distribution should drop right back out of the price. i personally think these equations are a load of it. the notes even mention that they fail in empirical tests |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
explain how interest rate volatility affects the value of a callable or putable bond;
explain how changes in the level and shape of the yield curve affect the value of a callable or putable bond;
calculate the value of a callable or putable bond from an interest rate tree;
CFA® 2025 Level II Curriculum, Volume 4, Module 28.