In the constant growth dividend valuation model, the required rate of return must be ____ the dividend growth rate in order for the formula price to be meaningful.
A) less than
B) equal to
C) greater than
D) proportional to

Question

Quizplus · Accepted Answer

In the constant growth dividend valuation model, the formula price is calculated as follows: Price = Dividend / (Required Rate of Return - Dividend Growth Rate). If the required rate of return is less than the dividend growth rate, the denominator of the formula becomes negative, resulting in an undefined or meaningless price. Therefore, the required rate of return must be greater than the dividend growth rate for the formula price to be meaningful.

In the Constant Growth Dividend Valuation Model, the Required Rate