Question

Under the constant growth version of the dividend valuation model, the value of a stock is a function of which of the following?

Answer 1

Answer:

a. The most recent dividend, the expected dividend growth rate, and the required rate of return on the stock.

Explanation:

Under the constant growth version, in dividend valuation method we have

$P_0 = \frac{D_0 + g}{K_e - g}$

Where,

P$_0$ = Current price of share

D$_0$ = Current recent most dividend

g = Growth rate

K$_e$ = Cost of equity or the required rate of return on the stock.

In this method capital gains are not considered at all.

But all the above listed factors are considered.

Therefore, correct option is,

a. The most recent dividend, the expected dividend growth rate, and the required rate of return on the stock.