The model used to value the stock of a firm which has a short-term growth rate that varies from its long-term growth rate is called the ________ dividend growth model.
A)flexible
B)increasing
C)two-stage
D)stepped up
E)geometric

Question

Quizplus · Accepted Answer

The two-stage dividend growth model is used when a firm's short-term growth rate is expected to differ from its long-term growth rate. The model assumes that the company will experience a high growth rate for a certain period of time, after which it will stabilize to a long-term growth rate. The two stages are usually defined by a transition period, during which the growth rate changes gradually. This model takes into account the changing nature of the growth rate and can provide a more accurate valuation of the company's stock.

The Model Used to Value the Stock of a Firm