The dividend valuation model (DVM) is very sensitive to the growth rate (g) being used, because it affects both the model's numerator and its denominator.

Question

Quizplus · Accepted Answer

The DVM calculates the value of a stock by dividing its expected dividends per share by the difference between the discount rate and the growth rate of dividends (g). Therefore, both the numerator (expected dividends) and the denominator (discount rate - g) are affected by changes in g, making the model highly sensitive to variations in the growth rate.

The Dividend Valuation Model (DVM) Is Very Sensitive to the Growth