About Dividend Discount Model (DDM) and stock valuation, which statement is NOT CORRECT? In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates. Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model. Other variables held constant, there is an inverse relation between stock prices and interest rates. By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.
About Dividend Discount Model (DDM) and stock valuation, which statement is NOT CORRECT? In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates. Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model. Other variables held constant, there is an inverse relation between stock prices and interest rates. By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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In DDM, the risk-adjusted discount rates should be higher than the corresponding treasury spot rates.
Stocks that don't pay dividend, such as, Amazon, Google, Facebook, etc., still have huge value. This contradicts DDM model.
Other variables held constant, there is an inverse relation between stock prices and interest rates.
By DDM, if a company is expected to never ever pays any cash in the future, its stock should be worth zero.
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