The stock valuation model that determines the current stock price by dividing the next annual dividend amount by the excess of the discount rate less the dividend growth rate is called the _____ model.
A) zero growth
B) dividend growth
C) capital pricing
D) earnings capitalization
E) differential growth

Question

Quizplus · Accepted Answer

The dividend growth model is also known as the Gordon growth model and is widely used to determine the intrinsic value of a stock by forecasting its future dividends. The model assumes the dividends will grow at a constant rate indefinitely, and the current stock price is determined by discounting the future dividends by the required rate of return or the discount rate.

The Stock Valuation Model That Determines the Current Stock Price