Which of the following statements is CORRECT? A) Two firms with the same expected dividend and growth rates must also have the same stock price. B) It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant. C) If a stock has a required rate of return r_s = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock's dividend yield is also 5%. D) The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. E) The constant growth model takes into consideration the capital gains investors expect to earn on a stock.

Question

Quizplus · Accepted Answer

The constant growth model, also known as the Gordon Growth Model, calculates the intrinsic value of a stock based on a future series of dividends that grow at a constant rate. It inherently accounts for the capital gains investors expect to earn, as the model's valuation reflects both the dividend income and the anticipated growth in those dividends over time.

Which of the Following Statements Is CORRECT