The dividend-discount model predicts that stock prices:

Question

Quizplus · Accepted Answer

According to the dividend-discount model, stock prices are primarily influenced by dividend payouts. Therefore, if dividends are high, stock prices should also be high. Choice B is incorrect because higher interest rates would indicate a higher cost of capital, which would decrease stock prices. Choice C is incorrect because a higher growth rate of dividends would indicate higher future payouts, which would increase stock prices. Choice D is incorrect because low dividends would indicate lower future payouts, which would decrease stock prices.

The Dividend-Discount Model Predicts That Stock Prices