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Basic Question 3 of 5

When residual income is constantly negative, a company' stock price should ______.

A. increase
B. decrease
C. remain the same
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User Contributed Comments 1

User Comment
davidt876 i think it's more pertinent to mention that *earnings yield increases since this valuation method uses earnings as its cash flow.

also if the company doesn't pay a dividend then the dividend yield can't increase.
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You have a wonderful website and definitely should take some credit for your members' outstanding grades.
Colin Sampaleanu

Colin Sampaleanu

Learning Outcome Statements

calculate and interpret residual income, economic value added, and market value added;

CFA® 2025 Level II Curriculum, Volume 4, Module 24.