- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 3. Equity Instruments and the Time Value of Money

###
**CFA Practice Question**

According to the dividend discount model the value of a stock is the ______.

B. future value of an expected stream of future dividends.

C. sum of all future dividends.

A. present value of an expected stream of future dividends.

B. future value of an expected stream of future dividends.

C. sum of all future dividends.

Correct Answer: A

Any number of stock valuation models are based on the premise that the value of a stock lies in the present value of its future divided stream.

###
**User Contributed Comments**
4

User |
Comment |
---|---|

chamad |
I don't see the difference between A & C! can someone explain...thanks |

VenkatB |
The sum of all (Present Value of) future dividends C is missing the "present value" aspect |

Oarona |
well explained VenkatB |

johntan1979 |
Just recall the formula: Is V = sum of all future dividends, i.e. D1, D2, D3...? Nope, it's D/r-g |