- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 8. Equity Valuation: Concepts and Basic Tools
- Subject 3. Present Value Models: The Dividend Discount Model
CFA Practice Question
The constant-growth dividend discount model would typically be most appropriate in valuing the stock of a ______.
B. rapidly growing company
C. moderate-growth, "mature" company
D. company with valuable assets not yet generating profits
A. new venture expected to retain all earnings for several years
B. rapidly growing company
C. moderate-growth, "mature" company
D. company with valuable assets not yet generating profits
Correct Answer: C
User Contributed Comments 5
| User | Comment |
|---|---|
| cong | Because high growth rate (above requried return) cannot be sustained forever, which violates the assumption of Gordon's model. |
| tochiejehu | YES DATS RYTE CONG |
| praj24 | Ref! we just need some consistency up in here! - constant growth rate = C (satisfies the criteria) Blame it on Caffeine... ayyy that begins with a C (losing my mind) |
| khalifa92 | for growing companies, we use three-stage DDM |
| walterli | constant growth company ?? |