Hi Mumu, I think it was you who posted a really interesting question just before the exam. You only gave r and g, and asked us to arrive at P/CF and dividend yield. A little playing with the formulas seemed to show that: P/CF= 1+g/r-g and D/P= r-g/1+g, suggeting that Price to CF and div yield are the inverse of one another. Sad fool that I am, i spent ages thinking about this on the Friday night. The formulas look right, but it obviously isn’t the case that CF=Div yield, which is the logical conclusion of the two formulas! So where is the error? Anyone care to have a go?
…just giving this a bump because this is a puzzle i’m thinking about too much and I want it solved.
Do you have a link?
It is pretty simple, the g in two equations are not the same…dividend growth rate does not have to be (99% of the time it does not) the same as CF growth rate…
…good point over05. that may well be it.