An increase in the level of inflation will unambiguously lead to an increase in the retention rate of the firm.

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The equity growth rate is an important factor for pricing,and helps to explain why equities and bonds differ.The growth rate is often defined as a function of the retention rate and the return on equity.The retention rate is the proportion of earnings not paid out as dividends.If the retention rate and/or the return on equity increases,the growth rate increases.

An Increase in the Level of Inflation Will Unambiguously Lead