When risk analysis is introduced into the dividend‑ growth model, the required rate of return considers
A) the firm's growth rate
B) the firm's dividend
C) the firm's beta coefficient
D) the firm's past dividends

Question

When risk analysis is introduced into the dividend‑ growth model, the required rate of return considers
A) ​the firm's growth rate
B) ​the firm's dividend
C) ​the firm's beta coefficient
D) ​the firm's past dividends

Quizplus · Accepted Answer

When risk analysis is introduced into the dividend-growth model, the required rate of return considers the firm's beta coefficient as it measures the systematic risk of the firm. The higher the beta coefficient, the higher the required rate of return to compensate for the additional risk associated with the stock. The firm's growth rate and dividend history may also factor into the analysis, but they are not directly used to determine the required rate of return. Past dividends are not relevant in this context.

When Risk Analysis Is Introduced into the Dividend‑ Growth Model