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Basic Question 1 of 12
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 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 4
| User | Comment |
|---|---|
| noonah | I is correct because the model assumes a constant growth rate of dividends, and that means each dvd is greater than the prior one. |
| rhardin | I is NOT correct. Direct quote from the notes: "Dividends may fall at a constant rate indefinitely extending in the future..." In this case the formula will still be valid and g will be negative. |
| VenkatB | good point rhardin.. |
| chris54321 | well done rhardin, you will definitely pass |
Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-to-earnings ratio (P/E) related to PVGO;
CFA® 2025 Level II Curriculum, Volume 3, Module 21.