Author Question: Which of the following statements is correct? (Read 39 times)

byomi · **on:** Aug 7, 2023

Question 1

Which of the following is the basis for stock values?

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expected dividends

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required rate of return

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expected sale price

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the firm’s liquidation value

Question 2

Which of the following statements is correct?

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The price of a stock is the present value of all expected future dividends, discounted at the sum of the required rate of return and the dividend growth rate.

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The stock valuation model, P₀ = D₁/(r_s– g), cannot be used for firms that have expected negative, but constant, growth rates.

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A necessary condition for the validity of the constant dividend growth model is that r_s should be greater than g.

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The constant growth model cannot be used for a zero growth stock, where the dividend is expected to remain constant over time.

KobyRhoads · **Reply #1 on:** Aug 7, 2023

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