Using the Constant Growth Model, an Increase in the Required

question 49

Multiple Choice

Using the constant growth model, an increase in the required rate of return from 14 to 18 percent combined with an increase in the growth rate from 8 to 12 percent would cause the price to

• A) fall more than 4%0
• B) fall less than 4%.
• C) rise more than 4%.
• D) rise less than 4%.
• E) remain constant.

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Definitions:

Financial Plans

Strategic documents that outline an individual's or organization's current financial situation, goals, and strategies to achieve those goals.

Financial Planning

The process of creating strategies for managing finance, including budgeting, saving, investing, and planning for future financial needs.

Forecast Growth

The predicted increase in value or size of a company, economy, or particular financial metric over a specified future period.

External Financing

Funds raised by a business from outside sources, including loans, bond sales, and equity investments, as opposed to internal financings such as retained earnings.