The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.
a. zero growth
b. dividend growth
c. capital pricing
d. earnings capitalization
e. discounted dividend
Stock Valuation Method:
A standard stock valuation method is the discounted dividend model. The philosophy behind this method is that the value of any asset is determined by the present value of future cash flows generated by the asset, discounted at the risk-adjusted required rate of return.
Answer and Explanation:
The answer is b).
According to the dividend growth model, the price of a stock is given by:
- price per share = next dividend / (required return - dividend growth rate)
Thus the currents stock price is equal to next dividend divided by the excess of the discount rate less the dividend growth rate.
Become a member and unlock all Study Answers
Try it risk-free for 30 daysTry it risk-free
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
from Finance 101: Principles of FinanceChapter 14 / Lesson 3