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Basic Question 10 of 16
In applying the constant-growth dividend discount model, lowering the required rate of return on a stock will cause the stock's intrinsic value to ______.
B. increase
C. decrease or increase, depending upon other factors
A. decrease
B. increase
C. decrease or increase, depending upon other factors
User Contributed Comments 7
| User | Comment |
|---|---|
| thekapila | it always depend on k-g is we lower k such that k <g then the model might not be valid. |
| morek | Decreased Required Rate of Return will decrease denominator, so increase value. |
| hoyleng | k has inverse relationship... |
| tochiejehu | REQUIRED RATE OF RETURN AND INTRINSIC VALUE HAVE AN INVERSE RELATIONSHIP |
| chesschh | Decreasing the denominator, increases the variable. Always |
| khalifa92 | why the caps tho |
| khalifa92 | GROWTH RATE AND INTRINSIC VALUE HAVE LOVELY RELATIONSHIP |
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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.