CFA Practice Question

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CFA Practice Question

Which of the following statements regarding the multistage DDMs is false?

A. The estimates provided by the models are extremely sensitive to inputs, such as the required rate of return and the growth assumptions.
B. The models can be used to estimate the expected rate of return implied in the market price of a stock.
C. All underlying assumptions are the same as the model specified for all DDMs, making these models conceptually uniform and easy to use.
Correct Answer: C

The models help in valuation only when built on valid assumptions. This stimulates analysts to understand the basis for these assumptions and the differences between companies in the market.

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