- CFA Exams
- CFA Level I Exam
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation
- Subject 8. Multistage dividend discount models

###
**CFA Practice Question**

An analyst is evaluating a stock:

- Last dividend on a stock: $4.
- Current dividend growth rate: 20%. It is expected to decline over 8 years to a sustainable growth rate of 6%.
- Required rate of return on the stock: 12%.

What is the value of this stock using the H-model?

A. $96

B. $100

C. $108

**Explanation:**The value of the stock = [4 x (1 + 0.06) + 4 x (8/2) x (0.20 - 0.06)] / (0.12 - 0.06) = $108.

###
**User Contributed Comments**
4

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

bryn |
I have done this question 10x's and get 75.226. |

ThePessimist |
It comes out right for me. Double-check your math. |

chris54321 |
11th time lucky!! |

siggarusfigs |
shouldn't we have to discount the sustainable growth value part by 8 years? |