Using the Gordon growth model,a stock's price will increase if
A) the dividend growth rate increases.
B) the growth rate of dividends falls.
C) the required rate of return on equity rises.
D) the expected sales price rises.

Question

Quizplus · Accepted Answer

According to the Gordon growth model, the stock price is directly proportional to the expected dividend per share and inversely proportional to the difference between the required rate of return and the dividend growth rate. Therefore, if the dividend growth rate increases, the expected dividend per share will be higher, leading to an increase in the stock price.

Using the Gordon Growth Model,a Stock's Price Will Increase If