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Basic Question 9 of 16
The constant-growth dividend discount model will not produce a finite value if the dividend growth rate is ______.
B. above its market capitalization rate
C. below its historical average
A. above its historical average
B. above its market capitalization rate
C. below its historical average
User Contributed Comments 7
| User | Comment |
|---|---|
| cgeek | k-g < 0 ? |
| katybo | above required rate |
| haarlemmer | Just checked the definition, market cap rate= RRR |
| Indira | in DDM g should always be lower than the required rate of return or market cap rate |
| Khadria | A. Historical Average = g (so it can't be correct) |
| cong | market capitalization is the same as the required return on equity. k-g needs to be positive. |
| robbiecow | Wiki: "Capitalization rate (or "cap rate") is the ratio between the net operating income produced by an asset and its capital cost (the original price paid to buy the asset) or alternatively its current market value." |
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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® 2025 Level I Curriculum, Volume 3, Module 8.