Assume That You Are Using the Dividend Growth Model to Value

question 58

Multiple Choice

Assume that you are using the dividend growth model to value stocks.If you expect the market rate of return to increase across the board on all equity securities, then you should also expect the:

• A)market values of all stocks to increase, all else constant.
• B)market values of all stocks to remain constant as the dividend growth will offset the increase in the market rate.
• C)market values of all stocks to decrease, all else constant.
• D)stocks that do not pay dividends to decrease in price while the dividend-paying stocks maintain a constant price.
• E)dividend growth rates to increase to offset this change.

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Definitions:

Contribution Format

A method of income statement presentation that separates fixed costs from variable costs, highlighting the contribution margin.

External Reporting

The process of providing financial information to external stakeholders, such as investors, creditors, and regulatory bodies.

Contribution Approach

A cost accounting approach that separates fixed and variable costs to determine the contribution margin per unit and understand the impact on net income.

Financial Statements

Documents that provide an overview of a company’s financial condition, including balance sheet, income statement, and cash flow statement.