The dividend discount model:
A) is a valuation approach based on future dividend income.
B) is a hybrid security that has characteristics of both long-term debt and common stock.
C) expects to have above average rates of growth in revenue, earnings, and/or dividends.
D) none of the above.

Question

Quizplus · Accepted Answer

The dividend discount model (DDM) is a method of valuing a company's stock price based on the theory that its stock is worth the sum of all its future dividend payments, discounted back to their present value. This approach focuses solely on the income generated from dividends, making choice A correct. Choices B and C describe characteristics of other financial concepts, not the DDM.

The Dividend Discount Model