Question

When assuming nonconstant growth in dividends, to avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends _____.

Answer 1

To avoid the problem of having to forecast and discount an infinite number of dividends, we must require that the dividends start to grow at a fixed rate in the future.

What are dividends?

Dividends are payments made by a company to its shareholders. This money is taken from the total profits made by the company. The remaining money after the payment of dividends goes to re-investment in order to grow the company.

Therefore, we can confirm that in order to avoid the problems presented in the question regarding dividends, we must require that they grow at a fixed rate in the future.

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