- 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
CFA Practice Question
Which of the following is least accurate with respect to the weaknesses of the Gordon Growth Model (GGM)?
A. Values generated by GGM are extremely sensitive to slight variations in the values inputted into the model.
B. GGM cannot generally be used for companies that aren't expected to pay dividends anytime in the near future, or companies that have an unstable dividend policy.
C. GGM cannot generally be used for emerging market companies.
Explanation: GGM can be used for emerging market companies as long as those companies are at a mature growth phase and are dividend paying.
User Contributed Comments 2
| User | Comment |
|---|---|
| jorellana9 | How can emerging market companies be in a mature growth phase? Isn't a mature growth phase held exclusively for developed countries? |
| shettyp | @jorellana9: Emerging market mean the market without the strong capital market structure or an evolving capital market. There can be mature companies in emerging market. |