Using the Constant Growth Model, an Increase in the Required

question 33

Multiple Choice

Using the constant growth model, an increase in the required rate of return from 19 to 17 percent combined with an increase in the growth rate from 11 to 9 percent would cause the price to

• A) fall more than 2 percent.
• B) fall less than 2 percent.
• C) remain constant.
• D) rise more than 2 percent.
• E) rise less than 3 percent.

---

Definitions:

Sell-Off

Transaction in which assets are sold by one firm to another.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for the financing of accounts receivable, inventories, and meeting short-term liabilities.

Discount Size

Pertains to the magnitude or amount of reduction in price offered on goods or services, often used as a sales promotion technique to increase consumer demand or clear inventory.

Maturity Period

The duration or lifetime until a financial instrument, such as a bond or loan, is due to be repaid in full.