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8 May 2018

which of the following statements is correct concerning the constant-growth dividend valuation model?

a) an increase in the required rate of return will increase the value of the stock

b) an increase in the rate of growth of th dividends will decrease the value of the stock

c) the growth rate represents the total rate of return to the shareholder

d) the price of the stock will increase over time so long as the discount rate and the groth rate dont change

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Nestor Rutherford
Nestor RutherfordLv2
9 May 2018

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Related questions

Which of the following would increase the expected current value of a stock valued using the constant growth model of stock valuation?

A. An increase in the expected dividend growth rate

B. A decrease in the required rate of return

C. A decrease in the expected dividend growth rate

D. Answers (b) and (c)

E. Answers (a) and (c)

Sun Corp. is thinking of changing their business model. Currently their beta is 2 and the last dividend paid (yesterday) was $2.00. The growth rate of the dividend is constant at 3. If they change their business model, they believe that they can increase their growth rate of the firm and dividend to 5%( constant). They obviously want to increase this groth rate without sacrificing their current stock price. Currenlty in the risk free rate is 5%, market return is 10% and they expect them to remain the same in the future. What is Sun Corp's current stock price before the changes to the business model?

$17.17

When they change their business model (g changes), what is the value of the beta that will keep the price of their stock at the same old price?

According to our constant growth stock valuation model, which of the following will cause the price of a share of common stock to decrease? a. an increase in the growth rate of the firm b. an increase in the required rate of return on the stock c. an increase in the expected dividend from the stock d. All of the above e. Only a and b f. Only a and c g. Only b and c h. None of the above.

And Explain why

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