Assume That You Are Using the Dividend Growth Model to Value

question 119

Multiple Choice

Assume that you are using the dividend growth model to value stocks. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the:

• A) Market values of all stocks to increase, all else constant.
• B) Market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate.
• C) Market values of all stocks to decrease, all else constant.
• D) Stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.
• E) Dividend growth rates to increase to offset this change.

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Definitions:

Gross Profit Method

An inventory estimation technique that calculates the cost of goods sold and ending inventory by using the gross profit margin.