The dividend discount model indicates that the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon. True or false?

Question

Business

Haleigh Berg

24 February, 01:24

The dividend discount model indicates that the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon. True or false?

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Answers (2)

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Angelique Randolph · Answer 1

Answer: True

Explanation: The Dividend Discount Model (DDM) is a quantitative method that is used in valuing a company's stock price based on the assumption that the current fair price of a stock is equal to the sum of all of the company's dividends in the future.

The Dividend Discount Model assumes that a dividend will grow constantly indefinitely. This assumption is safe for companies that are very mature and have an established history of regular dividend payments.

However, this model may not really be the suitable model to be used in valuing companies that are new and which have dividend growth rates that are fluctuating or have no dividend at all.

Myles Simmons · Answer 2

Answer: True.

Explanation: It I true that the dividend discount model indicates hat the value of a stock is the present value of the dividends it will pay over the investor's horizon, plus the present value of the expected stock price at the end of that horizon.

Dividend discount model (DDM) is a method of valuing a firm's stock price based on the theory that it is worth the sum of all its future dividend payments, discounted back to their current value. Dividend discount model is use to value stock base on their present net value.