According to Peter Lynch, a Rough Rule of Thumb for Security

question 28

Multiple Choice

According to Peter Lynch, a rough rule of thumb for security analysis is that

• A)the growth rate should be equal to the plowback rate.
• B)the growth rate should be equal to the dividend-payout rate.
• C)the growth rate should be low for emerging industries.
• D)the growth rate should be equal to the P/E ratio.

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Definitions:

Discount Rate

The interest rate used to determine the present value of future cash flows in discounted cash flow analysis, reflecting the opportunity cost of capital.

Drive Axle

An axle that is connected to the drive train and responsible for transferring power from the engine to the wheels.

Ring Gear

Spur gear such as that used on a flywheel for engine cranking, or the outer member of a planetary gearset.

Differential Case

The outer housing that encloses the differential mechanism in a vehicle, protecting its gears and components.