The Two-Stage Dividend Growth Model Evaluates the Current Price of a Stock

question 116

Multiple Choice

The two-stage dividend growth model evaluates the current price of a stock based on the assumption a stock will:

• A) pay an increasing dividend for a period of time and then cease paying dividends altogether.
• B) increase the dividend amount every other year.
• C) pay a constant dividend for the first two quarters of each year and then increase the dividend the last two quarters of each year.
• D) grow at a fixed rate for a period of time after which it will grow at a different rate indefinitely.
• E) pay increasing dividends for a fixed period of time, cease paying dividends for a period of time, and then commence paying increasing dividends for an indefinite period of time.

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Definitions:

Competitive Strategy

An approach a business takes to differentiate itself from its competitors, focusing on strengths to provide better value to customers.

Potential Customers

Individuals or entities that are considered likely to purchase a product or service but have not yet done so.

Products

Goods or services offered by businesses to consumers, intended to satisfy needs or wants.

Rapid Response

The ability to react quickly and efficiently to unforeseen situations or emergencies.