CALCULATION OF RETENTION RATE — OpenTuition Forums

Aanyundo10y ago

I am not clear on the calculation of the retention rate as solved in the bpp text.The question is: There is a dividend yield of 3.8% and PE ratio of 15.3. What is the retention rate. They solved it as follows : retention rate = 1-0.038*15.3 =41.68% May you please clarify why it was solved this way. I don't understand.

John MoffatTutor10y ago#1

You really need to use a bit of algebra :-) The retention rate = (E - D) / E = 1 - D/E D = 0.038 x MV PE = MV/E = 15.3, so E = MV / 15.3 So retention rate = 1 - ( 0.038MV / (MV / 15.3)) = 1 - (0.038 x 15.3)

Aanyundo10y ago#2

Thanks alot

John MoffatTutor10y ago#3

You are welcome :-)

AZA.R.M. Zakaria10y ago#4

Anyundo please tell me the page number of bpp text

John MoffatTutor10y ago#5

I am puzzled why knowing the page number makes any difference whatsoever to the calculation :-)

Ddragon7610y ago#6

could you pls. advise which question is it, where the formula The retention rate = (E – D) / E come from?

John MoffatTutor10y ago#7

I don't know what you mean by which question. The retention rate should not be learning a formula - it is basic Paper F3. The amount retained is (earnings - dividend). Therefore the retention rate = (earnings - dividend) as a percentage of the earnings.

Ddragon7610y ago#8

Thanks John, it already answer my question

John MoffatTutor10y ago#9

You are welcome :-)