Why should I choose AnalystNotes?
Simply put: AnalystNotes offers the best value and the best product available to help you pass your exams.
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 |
Thanks again for your wonderful site ... it definitely made the difference.
Craig Baugh
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.