If the Model Below Is to Give a "Reasonable" Valuation

question 102

Multiple Choice

If the model below is to give a "reasonable" valuation of a stock, which of the following is not a valid assumption for the model?

• A) Growth, g, is negative.
• B) There will be no growth, i.e., g is zero.
• C) The growth rate exceeds the required rate of return.
• D) The required return is exceptionally high (r_s > 30%).
• E) All of the above are workable assumptions and are valid in the sense that the model can be used even if they hold true.

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Definitions:

Intrusive Rock

An igneous rock that solidified from magma below Earth’s surface; synonym: plutonic rock.

Extrusive Rock

An igneous rock that forms when magma is erupted onto Earth’s surface; synonymous with volcanic rock.

Igneous Rock

Stone generated by the hardening and crystallization of molten rock material.

Bowens Reaction Series

Bowen's Reaction Series describes the sequence in which minerals crystallize from cooling magma according to their chemical composition and temperature.