The constant growth dividend valuation model does not hold when _____. A) k_e is greater than g B) dividends are growing faster than 4 percent C) g is greater than k_e D) the current dividend is known

Question

Quizplus · Accepted Answer

The constant growth dividend valuation model assumes that the growth rate of dividends (g) is less than the required rate of return (k), which is the discount rate used in the valuation formula. Therefore, if g is greater than k, the model does not hold. Choices A and B are incorrect because k_e should be greater than g for the model to hold, and dividends growing faster than 4 percent do not necessarily violate this assumption. Choice D is also incorrect because the current dividend is used in the valuation formula, so it is necessary for the model.

The Constant Growth Dividend Valuation Model Does Not Hold When