The Constant Dividend Growth Model

question 78

Multiple Choice

The constant dividend growth model:

• A) generally produces the same estimated cost of equity for a firm regardless of the source of information used to predict the rate of growth.
• B) can only be used if historical dividend information is available.
• C) ignores the risk that future dividends may vary from their estimated values.
• D) assumes that both the dividend amount and the stock price are not constant over time.
• E) uses beta to measure the systematic risk of the firm.

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Definitions:

Savings And Loan

Financial institutions that primarily accept savings accounts and provide mortgage lending, historically focusing on residential mortgages.

Taxpayers

Individuals or entities that are obliged to pay taxes to a government authority based on their income, property, or consumption.

Speculative Demand

The demand for goods not for immediate consumption, but for investment purposes with the hope of future price appreciation.

Commercial Banks

Financial institutions that accept deposits, offer various loans, and provide other financial services, like wealth management and currency exchange.