When applying the earnings multiplier model, all of the following will cause the required rate of return, k, to change EXCEPT
A) changes in the real risk-free rate.
B) changes in the retention rate.
C) changes in the rate of inflation.
D) changes in the risk premium for common stock.
E) All of these are correct (that is, all of these changes will cause a change in the required rate of return).

Question

Quizplus · Accepted Answer

The retention rate affects the growth rate of dividends or earnings, not directly the required rate of return, k, which is influenced by factors such as the real risk-free rate, inflation, and the risk premium for common stock.

When Applying the Earnings Multiplier Model, All of the Following