In the Gordon growth model,a decrease in the required rate of return on equity
A)increases the current stock price.
B)increases the future stock price.
C)reduces the future stock price.
D)reduces the current stock price.

Question

Quizplus · Accepted Answer

According to the Gordon growth model, if the required rate of return on equity decreases, the current stock price increases. This is because a decrease in the required rate of return implies that investors are willing to pay more for the stock, which increases its current price. Conversely, an increase in the required rate of return would reduce the current stock price. The future stock price is not directly affected by changes in the required rate of return on equity in the Gordon growth model.

In the Gordon Growth Model,a Decrease in the Required Rate