Which of the following statements is true about the constant growth model? a. The constant growth model implies that dividends remain constant from now to a certain terminal year. b. The constant growth model implies that dividend growth remains constant from now to infinity.

Question

Business

Donna Spence

14 January, 10:13

Which of the following statements is true about the constant growth model? a. The constant growth model implies that dividends remain constant from now to a certain terminal year. b. The constant growth model implies that dividend growth remains constant from now to infinity.

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Answers (1)

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Stella · Answer 1

b. The constant growth model implies that dividend growth remains constant from now to infinity.

Explanation:

The constant growth model is also known as Gordon growth model.

The growth model represents one of the ways of valuing stock which is based on the assumption that the dividends from a purchased stock will continue to rise at a uniform growth rate infinitely.

The assumption of the constant growth model can be used to calculate the fair amount to pay for the purchase of a stock.