Loading…
IIQEPrepStudyingPaper 1
Switch exam
MPF intermediaries
MPFMPF Intermediaries ExaminationUsing the constant growth dividend discount model, what is the value of a share expected to pay a dividend of HK$2.40 next year, if dividends grow at 4% a year and the required return is 10%?
Answer: HK$40.00. P = D / (r - g) = 2.40 / (0.10 - 0.04) = 2.40 / 0.06 = HK$40.00.Working:• r - g = 0.10 - 0.04 = 0.06• P = 2.40 / 0.06 = 40.00Why not the others:• HK$17.14: Divides by r + g (0.14) instead of r - g.• HK$24.00: Uses the zero growth model (D / r), ignoring the 4% growth.• HK$60.00: Divides by the growth rate alone (2.40 / 0.04).Watch out: Adding the growth rate to the required return instead of subtracting it.Rule: Constant growth DDM: P = D / (r - g), where D is next year's expected dividend.Source: IA Investment-linked Long Term Insurance Examination Study Notes, 2024 Edition (7th ed., Nov 2024; for exams from 17 Feb 2025), 3.3.9(d), p. 3/24
Adding the growth rate to the required return instead of subtracting it.
Practise more IIQE Paper 5 Investment Assets questions
Exam-style questions with worked answers, then full timed mocks. Free to start.
Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.
Start practising →Original study material written to the public IIQE Paper 5 syllabus. Independent, not endorsed by the Insurance Authority or the VTC. Verify figures and rules against current guidance before relying on them.