Because the DDM requires multiple estimates, investors should
A) carefully examine inputs to the model.
B) perform sensitivity analysis on price estimates.
C) not use this model without expert assistance.
D) feel confident that DDM estimates are correct.
E) carefully examine inputs to the model and perform sensitivity analysis on price estimates.

Question

Quizplus · Accepted Answer

The Dividend Discount Model (DDM) involves various estimates, such as growth rates and discount rates, making it sensitive to input assumptions. Therefore, it's crucial for investors to carefully examine these inputs and perform sensitivity analysis on the price estimates to understand how changes in assumptions affect the valuation. This approach helps in making more informed investment decisions.

Because the DDM Requires Multiple Estimates, Investors Should