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

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**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 two-stage DDM?

A. The model would be just as sound if a different discount rate was used for each phase.

B. The value for a stock is really the sum of the present values of each phase computed at the inception of each phase.

C. The first stage may be structured so that growth is either constant or adjusting at a constant rate towards its longer term growth rate, and the second stage of the two stages DDM assumes a growth rate that will persist for the long term.

**Explanation:**The value for a stock is really the sum of the present values of each phase computed as of today. In other words, the present value of the second phase must be expressed as of today.

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**User Contributed Comments**
2

User |
Comment |
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brandsat |
D refers to DDM or H-model (which is also a special type of DDM). |

siggarusfigs |
in A), doesn't the growth rate have to be different at each stage as well? |