Infinite Growth Is a Problem with the Dividend Discount Model

question 26

Multiple Choice

Infinite growth is a problem with the dividend discount model because:

• A)The expected stream of dividends is infinite
• B)At reasonably high discount rates,such as 12 percent,dividends received in the distant future (40 or 50 years from now)are worth very little today
• C)Dividend growth rates eventually become very small
• D)The statement is incorrect - infinite growth is not a problem with the dividend discount model because at reasonably high discount rates,such as 12 percent,dividends received in the distant future are worth very little today

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Definitions:

Assets

Economic resources or valuable items that an individual, corporation, or country owns or controls with the expectation that it will provide future benefits.

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's initial cost.

Required Share

The portion of equity that must be offered to existing shareholders when new shares are issued.

Ownership

The state or fact of possessing something, often referring to the holding of assets or property.