The Graham-Rea Model to Identifying Underpriced Common Stocks

question 57

Multiple Choice

The Graham-Rea model to identifying underpriced common stocks

• A) only works for small firms.
• B) recommends stocks with high price-earnings ratios.
• C) assumes purchases will be held forever.
• D) relates stock yields to triple-A bond yields. (e) ignores risk.

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Definitions:

Retention Ratio

This metric indicates the percentage of net income a firm retains to reinvest in its business rather than distributing to shareholders as dividends.

Dividend Payout Ratio

The fraction of earnings a company pays out to its shareholders in the form of dividends.

Cash Dividends

Distributions of a company's earnings to shareholders in the form of cash.