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CFA Institute Exam CFA-Level-I Topic 3 Question 6 Discussion

Actual exam question for CFA Institute's CFA-Level-I exam
Question #: 6
Topic #: 3
[All CFA-Level-I Questions]

Consider the following information for Magical Interactions, Inc.

Based on the assumptions above, which of the following statements is TRUE?

Show Suggested Answer Hide Answer
Suggested Answer: D

Contribute your Thoughts:

Shelba
1 months ago
I'm not sure if I'm feeling lucky enough to gamble on this one. But, you know what they say, 'You miss 100% of the shots you don't take.' I'm going to go with C. If management can increase the EBITDA ratio by only 1.0%, the stock will be properly priced (all else equal).
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Katina
16 days ago
I agree with you, option C seems like a good choice to go with.
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Osvaldo
20 days ago
I'm leaning towards option B, increasing the earnings retention rate seems promising.
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Jolene
29 days ago
I think option C is a safe bet.
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Gaynell
1 months ago
Ha! These finance questions always try to trick you. I'm going to go with B. If the earnings retention rate increases, the value of the stock will increase (all else equal). Can't go wrong with good old-fashioned reinvestment, right?
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Ashanti
8 days ago
User 4: Looks like we're all on the same page with this one.
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Cristal
11 days ago
User 3: I agree, it's a safe bet to go with B in this case.
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Teri
13 days ago
User 2: Yeah, reinvesting earnings can definitely boost the stock value.
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Laurel
15 days ago
I think B is the correct answer too.
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Shawnee
2 months ago
I'm not sure, but I think the answer might be D.
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Freeman
2 months ago
I disagree, I believe the answer is C.
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Mabel
2 months ago
I think the answer is B.
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Josephine
2 months ago
Hmm, this is a tricky one. I'm going to go with D. If inflation expectations decrease, the value of the stock will increase (all else equal). That makes sense to me, as lower inflation would mean a higher real return on the stock.
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Sherrell
1 months ago
Interesting perspectives. I'm leaning towards A, that the stock is undervalued based on the assumptions provided.
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Michell
1 months ago
I see your point, but I still think D is the right answer. If inflation expectations decrease, the value of the stock will increase.
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Belen
2 months ago
I disagree, I believe C is the true statement. If management can increase the EBITDA ratio by only 1.0%, the stock will be properly priced.
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Janine
2 months ago
I think B is the correct statement. If the earnings retention rate increases, the value of the stock will increase.
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Trinidad
2 months ago
I'm a bit stumped on this one. I'm leaning towards C, but I'm not 100% sure. If management can increase the EBITDA ratio by only 1.0%, the stock will be properly priced (all else equal). That seems like a reasonable assumption, but I'd have to double-check the math.
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Howard
2 months ago
I think the correct answer is B. If the earnings retention rate increases, the value of the stock will increase (all else equal). This makes sense because a higher retention rate means the company is reinvesting more of its earnings, which should lead to higher future growth and stock value.
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Evan
1 months ago
I think you're right. A higher earnings retention rate could definitely signal future growth potential for the company.
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Harrison
1 months ago
I agree, B seems like the correct answer. It makes sense that reinvesting earnings would lead to higher stock value.
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