- CFA Exams
- CFA Level I Exam
- Study Session 10. Equity Valuation (2)
- Reading 27. Discounted Dividend Valuation
- Subject 6. Strengths and limitations of the Gordon growth model

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**CFA Practice Question**

Which of the following is the LEAST ACCURATE with respect to the strengths of the Gordon Growth Model (GGM)?

B. GGM takes into account a stock's sensitivity to multiples risk factors.

C. When given the security price, GGM allows for the computation of the expected rate of return on that stock.

D. GGM may also be used to value an equity index.

A. GGM is most appropriate for valuing mature companies with a stable dividend policy.

B. GGM takes into account a stock's sensitivity to multiples risk factors.

C. When given the security price, GGM allows for the computation of the expected rate of return on that stock.

D. GGM may also be used to value an equity index.

Correct Answer: B

GGM DOES NOT take into account a stock's sensitivity to multiple risk factors. Instead, through multifactor models, one may estimate the required rate of return on the stock, and then input that into the GGM. However, the GGM itself does not directly examine these multiple risk factors

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