Question

The dividend growth model tells us that for a stock, if there is an increase in its ___________________, it will result in a dcrease in the current value of the stock.

• number of future dividends, provided the total number of dividends is less than infinite

• dividend growth rate

• both the discount rate and the dividend growth rate

• dividend amount

• discount rate

As Dell is currently producing its products at its full capacity, it cannot produce and sell more without adding _______________.

• inventory

• net working capital

• debt-equity ratio

• long-term debt

• fixed assets

Answer 1

1)

Under dividend discounting model, stock price and discount rate have inverse relationship. If discount rate increase, stock price will decrease and vice-versa.

Hence, correct option is “discount rate”.