5. According to constant growth DDM, the value of a stock increases as: a. the required...
5. According to constant growth DDM, the value of a stock increases as:
a. the required rate of return decreases.
b. the required rate of return increases.
c. the dividend growth rate increases.
d. both a and c are correct.
Homework Answers
The answer is d. Both a and c are correct
Value of stock as per Dividend Discount Model = Next expected Dividend/(Required return - growth rate)
Hence, value of stock increases when the required return decreases or the growth rate increases.
Value will decrease if required return increases
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