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 the above changes will cause a change in the required rate of return

Question

Quizplus · Accepted Answer

Changes in the retention rate will affect the earnings growth rate but not the required rate of return. All of the other factors listed (real risk free rate, rate of inflation, and risk premium for common stock) will affect the required rate of return and therefore change the earnings multiplier model.

When Applying the Earnings Multiplier Model All of the Following