The constant-growth valuation model is based on the premise that the value of a share of common stock is ________.
A) the sum of the dividends and expected capital appreciation
B) determined based on an industry standard P/E multiple
C) determined by using a measure of relative risk called correlation coefficient
D) equal to the present value of all expected future dividends

Question

Quizplus · Accepted Answer

The constant-growth valuation model assumes that the value of a share of common stock is equal to the present value of all expected future dividends, where the dividends are assumed to grow at a constant rate. This is also known as the Gordon Growth Model. Therefore, the correct answer is D.

The Constant-Growth Valuation Model Is Based on the Premise That