Question

The constant dividend growth model: a. is more complex than the differential growth model. b. requires the growth period be limited to a set number of years. c. is never used because firms rarely attempt to maintain steady dividend growth. d. can be used to compute a stock price at any point in time. e. most applies to stocks with differential growth rates.

Answer 1

Answer:

The correct answer is letter "D": can be used to compute a stock price at any point in time.

Explanation:

The Gordon Growth Model, also known as the Constant Dividend Growth Model, is used to measure the value of the stock at any point in time based on the projected future dividends of the stock. Investors and analysts are commonly used to compare the estimated value of the stock against the current market price. Analysts interpret the gap between the two prices as proof that the stock could be under or overvalued by the market.