AICPA Sample exam question

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  • #3088155
    Yello
    Guest

    An analyst expects a company to pay a dividend of $5 with a dividend growth rate of 3%. The inflation rate is expected to fall from 5% per year to 3% per year. As a result of the change in the inflation premium, the company’s

    Stock price will likely decrease.
    Cost of equity will likely remain stable.
    Cost of equity will likely decrease.
    Stock price will likely remain stable.

    The answer is c. Can somebody please explain why? Thank you!

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  • #3088689
    monikernc
    Participant

    Look through these questions with solutions to grasp better the math and concepts behind the question.Your particular question is not on this but they all address the topic you are studying.

    http://userwww.sfsu.edu/li123456/sample2-819.doc

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    #3089784
    CPAHOPE
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    It impacts the stock price when there is changes in inflation rate. Since stocks are part of equity, it wiĺl decrease the equity

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    #3090705
    Yello
    Guest

    Thanks!!

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