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:

LCD TVs

Television sets that use Liquid Crystal Display technology to produce images, known for their slim profiles and energy efficiency.

Marginal Rate

The rate at which something changes as an immediate result of a one-unit increase, often used in economics to describe tax rates or production costs.

Transformation

The process of changing or converting something from one form or state to another, often referring to industrial, business, or technological changes.

Economic Growth

The increase in a country's production of goods and services over time, indicative of a growing economy.