Question

In accordance with the dividend growth model, an increase in the following except will raise the current value of a stock. 1. dividend amount II. investor's required return III. dividend growth rate Multiple Choice 0 I and Il only 0 O and Ill only 0 I only 0 Ill and III 0 ll only

Answer 1

I have answered 1 and 4 questions

1) Ans) 1 and 3 only

The formula for calculating stock price using dividend growth model is

P = D1/(R-g)

as per the formula if Dividend next year increases, the stock price increases as it increases the numerator

if required rate increases, the stock price decreases as it increases the denominator

if growth rate increases, the stock price increases as it decreases the denominator

4) Ans) Zero coupon bonds

Zero coupon bonds are the ones which do not pay any coupons through out their life and does the single payment during maturity