The constant-growth dividend discount model will NOT produce a finite value for a stock if the dividend growth rate is

Question

Quizplus · Accepted Answer

The constant-growth dividend discount model assumes dividends grow at a constant rate indefinitely. If the dividend growth rate is above the required rate of return, the model suggests the stock's value goes to infinity, which is not realistic. This is because the model's denominator (required rate of return - dividend growth rate) becomes negative, leading to a mathematically infinite result.

The Constant-Growth Dividend Discount Model Will NOT Produce a Finite