Question

The dividend growth model: I. cannot be used to value zero-growth stocks. II. cannot be used to compute a stock price at any point in time. III. requires the required return to be higher than the growth rate. IV. assumes that dividends increase by a constant amount forever. V. none of the above is correct Multiple Choice 0 II, and IV only 0 V only 0 1, I, II, and IV only 0 Ill only 0

Answer 1

I am asnwering the second and third question,

2) Ans) Dividend growth model

as per the dividend growht model , the formula for calculating the stock price using dividend growth model = D1/(r-g)

where D1 = dividend in the next period

r = discount rate

g = constant growth rate

3) Ans) Discount Rate

since she is calculating the present value of the 1200 which she is going to receive later next year, she should do discounting, and so the rate used for discounting is discount rate