If the Interest Rate Is 10%, Then an Asset That

question 38

True/False

If the interest rate is 10%, then an asset that returns $1 a year forever is worth .

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Definitions:

Earnings Retention Ratio

The earnings retention ratio, also known as the plowback ratio, measures the percentage of net income that is retained in the company rather than being paid out as dividends.

Market Capitalization Rate

Market capitalization rate, or "cap rate", is used in evaluating and comparing the expected returns on investments in the equity market, reflecting the cost of capital for a company.

P/E Ratio

The price-to-earnings ratio, a valuation metric calculated by dividing the current market price of a stock by its earnings per share.

Dividend Plowback Ratio

The portion of a company's earnings that is not distributed as dividends but is reinvested in the business, also known as the retention rate.