Question

Problem 17 | Attempt 2/8 for 8 pts. Part 1 Which statements are CORRECT? Check all that apply: Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model OGE recently announced the news to cut future dividend. The plan hardly affects its current stock price Shareholder's total return comes from two sources only: dividend and capital gain ONYSE is a primary market In DDM, the stock price is called ex-dividend price because it is the price before current dividend is paid out By Dividend Discount Model (DDM), if a company never ever pays any cash in the future, its stock should be worth zero In DDM, the risk-adjusted discount rates can be replaced with treasury spot rates Submit

Answer 1

I am namimg options as a,b,c,d,e,f,g.

Correct:
a. Stocks that don't pay... Contradicts DDM model.
This is one of the drawbacks of the DDM model.

c. Source of Total return = Dividend + Capital Gain.

f. Not pay cash in the future means there is no dividend in the future. As there is no dividend, as per the DDM model the intrinsic value of the share is zero.

Incorrect:
b. It will have an impact. The stock price will decrease.

d. NYSE is the secondary market.

g. Cannot be replaced.