Question

The constant-growth dividend model will provide invalid solutions when

Answer 1

The constant-growth dividend model will provide invalid solutions when the growth rate of the stock exceeds the required rate of return for the stock.

The constant-growth dividend model is also known as the Gordon growth model. This model is used to help determine the intrinsic value of a stock based on how future dividends grow at a set rate. Intrinsic value is defined as the real value of a company or asset based on what the perception of the value is. Both intangible and tangible factors are accounted for when determining intrinsic value.