Question

which of the following is true regarding the gordon growth model?a.the dividend growth rate is assumed to be greater than the required return on equityb.dividends are assumed to grow at a constant rate forever.c.both a and b of the above.d.neither a nor b of the above

Answer 1

The true statement regarding the Gordon growth model is Dividends are assumed to grow at a constant rate forever .

Option A is correct .

What Is the Gordon Growth Model( GGM)?

The Gordon growth model( GGM) is used to judge the natural value of a stock grounded on a unborn series of tips that grow at a constant rate. It's a popular and straightforward variant of the tip reduction model( DDM). The GGM assumes that tips grow at a constant rate in infinity and solves for the immediate value of the horizonless series of unborn tips.

About Gordon growth model :

The Gordon growth model( GGM) attempts to compute the fair worth of a stock irrespective of the conquering market conditions and takes into account the tip payout factors and the request's anticipated returns.However, also the stock is considered to be underrated and should be bought, If the GGM value is advanced than the stock's current market price.

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