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Basic Question 1 of 16
The Gordon Growth Model assumes that ______
II. the discount rate is greater than the growth rate.
III. the growth rate increases over time.
I. each future dividend is (1+g) greater than the prior one.
II. the discount rate is greater than the growth rate.
III. the growth rate increases over time.
User Contributed Comments 9
| User | Comment |
|---|---|
| danlan | The growth rate is constant. |
| valeris | AS far as I goes, I'd say the correct answer is 'dividend is g greater than previous'. |
| garethdav | is this gordon's growth model? |
| TheHTrader | I guess "(1+g)" implies the multiplier to get the next dividend. |
| Vikku | You are right TheHTrader. |
| bundy | Growth rate constant |
| thecfaguy | Isn't answer choice II an assumption of the infinite period DDM ? |
| 2014 | Page number 282 for assumtions of Gorden Model: same words used in notes: "The dividend growth rate is strictly less than required rate of return" Second option is correct hence Required rate of return is constant overtime Dividend growth is forever, perpetual, never changes |
| edushyant | II is correct assumption, coz if the discount rate (ke) is not greater than growth rate(gc) then model breaks down as denominator will be negative! |
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Learning Outcome Statements
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models
calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate
explain advantages and disadvantages of each category of valuation model
CFA® 2024 Level I Curriculum, Volume 3, Module 8.