The Required Rate of Return for common stock is K_e = (D1/P₀) + g What are the assumptions of the model? A) Growth (g) is constant to infinity. B) The price earnings ratio stays the same. C) The firm must pay a dividend to use this model. D) All of these options are assumptions of the model.

Question

Quizplus · Accepted Answer

All three options are assumptions of the Required Rate of Return model. The model assumes that growth (g) is constant to infinity, the price earnings ratio stays the same, and the firm must pay a dividend to use this model.

The Required Rate of Return for Common Stock Is Ke

The Required Rate of Return for Common Stock Is K_e