CFA Level I · CFA Level I Exam · Equity Analyst Research Reports
An analyst values a firm at €50 per share using base-case revenue growth of 6%. A sensitivity analysis shows that each 1 percentage point decline in growth lowers value by €4. The market price is €40. Growth at which the analyst's estimated value would equal the market price is closest to:
Growth would need to be about 3.5%. The value must drop €10 to reach the market price, each point of lower growth removes €4, so growth falls 2.5 points from 6%, giving 3.5%.
- A1.0%Correct
- B3.5%
- C4.0%
Explanation
Value must fall by €10 (50 − 40). At €4 per point, that is 2.5 points of lower growth, so growth = 6% − 2.5% = 3.5%. Wait, recompute: 10/4 = 2.5, giving 3.5%.
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