Based on the dividend discount model, the current value of a stock will ____ as the discount rate is decreased.

Question

Quizplus · Accepted Answer

According to the dividend discount model, the current value of a stock is directly proportional to the present value of its future dividends. A decrease in the discount rate (required rate of return) will lead to an increase in the present value of future dividends, which in turn increases the current value of the stock. Therefore, as the discount rate is decreased, the current value of a stock will increase.

Based on the Dividend Discount Model, the Current Value of a Stock