- 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
In applying the constant-growth dividend discount model, lowering the required rate of return on a stock will cause the stock's intrinsic value to ______.
B. increase
C. decrease or increase, depending upon other factors
A. decrease
B. increase
C. decrease or increase, depending upon other factors
Correct Answer: B
User Contributed Comments 7
| User | Comment |
|---|---|
| thekapila | it always depend on k-g is we lower k such that k <g then the model might not be valid. |
| morek | Decreased Required Rate of Return will decrease denominator, so increase value. |
| hoyleng | k has inverse relationship... |
| tochiejehu | REQUIRED RATE OF RETURN AND INTRINSIC VALUE HAVE AN INVERSE RELATIONSHIP |
| chesschh | Decreasing the denominator, increases the variable. Always |
| khalifa92 | why the caps tho |
| khalifa92 | GROWTH RATE AND INTRINSIC VALUE HAVE LOVELY RELATIONSHIP |