Statement Misconceptions | CFA® Level 1 Exam Prep

Statement Misconceptions

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Question

Which statement is not true?

Answers

A. Within industries, firms tend to have similar capital structures.

B. Most ratios vary across time within a given industry.

C. The higher proportion of debt, the higher the return on equity ratio will be.

D. The lower the dividend yield, the greater the anticipated price appreciation.

E. High P/E ratios tend to go with high payout ratios.

F. The higher the payout ratio in a given industry, the more important dividends are to shareholders. E

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Explanations

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A. B. C. D. E. F.

Explanation

High P/E ratios tend to go with low payout ratios as both of these measures are associated with higher growth rates. Remember that low payout ratios are common for high-growth companies as they give up a paying large dividends to finance their firm.

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