When using the two-stage dividend growth model:
A) g₁ cannot be negative.
B) Pt = Dt/R.
C) g₁ must be greater than g₂.
D) g₁ can be greater than R.
E) R must be less than g₁ but greater than g₂.

Question

Quizplus · Accepted Answer

In the two-stage dividend growth model, the initial growth rate (g₁) can be greater than the required rate of return (R) during the high-growth phase, as this phase is typically characterized by rapid growth.

When Using the Two-Stage Dividend Growth Model