The residual income model (RIM) primarily applies to firms which:
A stock has a required return of 15 percent, a constant growth rate of 10 percent, and a dividend payout ratio of 50 percent. What should the stock’s P/E
ratio should be?
Suppose a security pays a current dividend of $5 and all future dividends will grow at a rate of 8 percent per year forever. Assuming the appropriate discount rate is 12 percent, what is the value of this security?
If the return on equity for a firm is 15 percent and the retention ratio
is 40 percent, the sustainable growth rate of earnings and dividends is which of the following?
A company has a return on equity of ROE = 20 percent, and, from
earnings per share of EPS = $5, it pays a $2 dividend. What is the company’s sustainable
Tests your understanding of the following topics:
a) Stock Markets
b) Valuation of Stock