- CFA Exams
- CFA Exam: Level I 2021
- Study Session 13. Equity Investments (2)
- Reading 41. Equity Valuation: Concepts and Basic Tools
- Subject 2. Present Value Models: The Dividend Discount Model

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**CFA Practice Question**

In applying the constant-growth dividend discount model, lowering the required rate of return on a stock will cause the stock's intrinsic value to ______.

B. increase

C. decrease or increase, depending upon other factors

A. decrease

B. increase

C. decrease or increase, depending upon other factors

Correct Answer: B

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**User Contributed Comments**
7

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

thekapila |
it always depend on k-g is we lower k such that k <g then the model might not be valid. |

morek |
Decreased Required Rate of Return will decrease denominator, so increase value. |

hoyleng |
k has inverse relationship... |

tochiejehu |
REQUIRED RATE OF RETURN AND INTRINSIC VALUE HAVE AN INVERSE RELATIONSHIP |

chesschh |
Decreasing the denominator, increases the variable. Always |

khalifa92 |
why the caps tho |

khalifa92 |
GROWTH RATE AND INTRINSIC VALUE HAVE LOVELY RELATIONSHIP |