In the Gordon model, the value of a common stock is the ________.
A) net value of all assets which are liquidated for their exact accounting value
B) actual amount each common stockholder would expect to receive if the firm's assets are sold
C) present value of a non-growing dividend stream
D) present value of a constant growing dividend stream

Question

Quizplus · Accepted Answer

The Gordon model assumes a constant growth rate in dividends, and therefore calculates the present value of future dividends discounted at the required rate of return. Thus, the value of a common stock in the Gordon model is the present value of a constant growing dividend stream.

In the Gordon Model, the Value of a Common Stock