Chartered Financial Analyst (CFA) Practice Exam Level 2

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the CFA Exam Level 2 with flashcards and multiple-choice questions. Each question includes hints and explanations to boost your confidence and enhance your study process. Get ready for success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is typically associated with companies that have low growth prospects?

High dividend payout ratios
Low dividend yields
High reinvestment rates
High retention ratios

The correct answer is: High dividend payout ratios

Companies with low growth prospects often exhibit high dividend payout ratios. This is because these companies are typically unable to find profitable investment opportunities that yield higher returns than their existing operations. As a result, they distribute a significant portion of their earnings to shareholders in the form of dividends rather than reinvesting them back into the business. High dividend payouts are attractive to investors looking for income, as these companies may not provide much capital appreciation due to their stagnant growth. In contrast, options that suggest low dividend yields or high reinvestment and retention ratios are more characteristic of companies with better growth opportunities. Such companies might prioritize reinvesting their earnings to fuel future growth rather than paying out large dividends.