- CFA Exams
- CFA Exam: Level I 2021
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 2. Present Value Models: The Dividend Discount Model

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**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.

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**User Contributed Comments**
4

User |
Comment |
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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 |