The constant growth model sometimes yields negative values for stocks, when growth rates exceed the discount rate.TrueFalse

The constant growth model, also known as the Gordon Growth Model, assumes that a stock's value is…

Answered: The constant growth model sometimes…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

Typically, short-term interest rates: А. are more volatile than long-term interest rates В. are less volatile than long-term interest rates C. have similar volatility as the long-term interest rates D. None of the above
The dividend growth model is only useful for estimating a stock's value when the A. Stock's beta is strickly less than the market beta B. Stock's required return is strictly less than the constant growth rate in dividends C. Stock's growth rate in dividends is strictly greater than zero D. Stock pays dividends
The broad stock market's P/E ratio (the inverse of its earnings yield) tends to rise as treasury yields O rise O remain stable O no relationship O fall
The dividend growth model of stock evaluation relies on several assumptions that might not be true in the real world. What are they?
Which of the following is consistent with the pure expectations theory of the yield curve? Check all that apply. A downward-sloping yield curve suggests that the market thinks interest rates in the future will be higher than they are today. ✓ A downward-sloping yield curve suggests that the market thinks interest rates in the future will be lower than they are today. A flat yield curve suggests that the market thinks interest rates in the future will be the same as they are today. A flat yield curve suggests that the market thinks interest rates in the future will be higher than they are today. Maria would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 6 percent and a two-year bond that pays 9 percent. Maria is considering the following investment strategies: Strategy A: In the first year, buy a one-year bond that pays 6 percent. Once that bond matures, buy another one-year bond that pays the forward rate. Strategy B: In the…
Assuming that the stock price follows a geometric Brownian motion, is it a Markov process when the coefficient is not constant?
A normal yield curve a.has an upward slope b.is a sign of a coming recession c.indicates that the interest rate will decrease in the future d.All of the above.
3
If we assume that inflation, the real cost of capital and the nominal cost of capital are always positive, which of the following statements is true? Question 3Select one: a. The expected inflation rate will always be greater than the nominal cost of capital. b. The nominal cost of capital will always be greater than the real cost of capital. c. The real cost of capital will always be greater than the nominal cost of capital. d. The expected inflation rate will always be greater than the real cost of capital.
If the intrinsic value of a stock is below the current market price, over time we can expect buy orders to exceed sell orders, causing the price to rise buy and sell orders to be evenly matched, keeping the price at its current level sell orders to exceed buy orders, causing the price to rise sell orders to exceed buy orders, causing the price to fall buy orders to exceed sell orders, causing the price to fall
What effect do increasing inflation expectations have on the required returns of investors in common stock?
“The constant-growth model should not be used with just any stock.” Explain with reasons the assumptions used by analysts when using the constant- growth dividend model.

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The constant growth model sometimes yields negative values for stocks, when growth rates exceed the discount rate. O True O False