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Basic Question 7 of 7
Which of the following statements regarding the multistage DDMs is false?
B. The models can be used to estimate the expected rate of return implied in the market price of a stock.
C. All underlying assumptions are the same as the model specified for all DDMs, making these models conceptually uniform and easy to use.
A. The estimates provided by the models are extremely sensitive to inputs, such as the required rate of return and the growth assumptions.
B. The models can be used to estimate the expected rate of return implied in the market price of a stock.
C. All underlying assumptions are the same as the model specified for all DDMs, making these models conceptually uniform and easy to use.
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Your review questions and global ranking system were so helpful.
Lina
Learning Outcome Statements
explain the assumptions and justify the selection of the two-stage DDM, the H-model, the three-stage DDM, or spreadsheet modeling to value a company's common shares;
describe terminal value and explain alternative approaches to determining the terminal value in a DDM;
calculate and interpret the value of common shares using the two-stage DDM, the H-model, and the three-stage DDM;
explain the use of spreadsheet modeling to forecast dividends and to value common shares;
evaluate whether a stock is overvalued, fairly valued, or undervalued by the market based on a DDM estimate of value.
CFA® 2025 Level II Curriculum, Volume 3, Module 21.