Which of the following is a limitation of the dividend-discount model? A. Its reliance on dividend forecasts. B. It does not consider past earnings and performance. C. It requires that the growth rate always be higher than the required rate of return, which is not realistic. D. It cannot handle negative growth rates.

Question

Social Studies

Damien Barr

13 March, 05:08

Which of the following is a limitation of the dividend-discount model? A. Its reliance on dividend forecasts. B. It does not consider past earnings and performance. C. It requires that the growth rate always be higher than the required rate of return, which is not realistic. D. It cannot handle negative growth rates.

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Answers (1)

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Carsen Norton · Answer 1

The answer to this questions is D. It cannot handle negative growth rates.

Explanation:

The Dividend Discount Model is a quantitative method of valuing a company's stock price based on the assumption that the current fair price of a stock equals the sum of all of the company's future dividends discounted back to their present value.

one major limitations of Dividend discount model is that It cannot handle negative growth rates.

Hence the answer is D