- 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**

Which of the following statements is the LEAST accurate with respect to the assumptions and the justification for the selection of the H-model?

A. The H-model is really a two stage valuation model: the sum of the present value assuming growth at the long term rate and a premium to account for the company's supernormal growth rate in the initial phase.

B. The H-model produces only an approximation of the value that would be computed if each dividend was discounted individually.

C. The H-model becomes more accurate as the extraordinary growth period becomes longer.

**Explanation:**The H-model becomes less accurate as the extraordinary growth period becomes longer. The H-model is an approximation model, thus resulting in a small error for each dividend forecasted. Such small errors would nevertheless accumulate to a very large error if the counting period was extended.

###
**User Contributed Comments**
3

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

brandsat |
why not A ? |

chessdude |
A is correct so should not be chosen. |

MTenaglia |
darn that least accurate trick |