Which of the Following Is True About the Variable Growth

question 16

Multiple Choice

Which of the following is true about the variable growth model?

• A) Present value equals the discounted sum of the annual forecasts of cash flow
• B) Present value equals the discounted sum of the annual forecasts of cash flow plus the discounted value of the terminal value
• C) Present value equals the discounted value of the next year's cash flow grown at a constant rate in perpetuity
• D) Present value equals the current year's free cash flow discounted in perpetuity
• E) None of the above

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Definitions:

Expected Return

The predicted yield or gains an investor anticipates on an investment, based on historical or statistical measures.

Efficient Frontier

A concept in modern portfolio theory representing a set of optimal investment portfolios that offer the highest expected return for a defined level of risk.

Probability Distribution

A function in statistics that identifies and quantifies all plausible values and their chances of occurrence for a random variable over a specific range.

Portfolio

A group of investments that comprise stocks, bonds, commodities, along with cash and cash equivalents such as mutual funds and exchange-traded funds (ETFs).