The dividend growth model:
I.assumes that dividends increase at a constant rate forever.
II.can be used to compute a stock price at any point in time.
III.can be used to value zero-growth stocks.
IV.requires the growth rate to be less than the required return.
A)I and III only
B)II and IV only
C)I, III, and IV only
D)I, II, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

The dividend growth model indeed assumes dividends grow at a constant rate indefinitely (I), can be applied to calculate a stock's price at any given time (II), is applicable for valuing stocks that do not expect to see any growth in dividends (zero-growth stocks) by setting the growth rate to zero (III), and necessitates that the dividend growth rate be less than the required rate of return for the model to work properly (IV).

The Dividend Growth Model