The relationship between the two key elements of the constant dividend growth mo

Question

The relationship between the two key elements of the constant dividend growth model is

Question 2 options:

that Dt+1 is less than the prior one, Dt.

that the growth rate is always positive and greater than the discount rate.

assumes the growth rate is always less than the discount rate.

the long run growth rate is postive

Both B and D.

that Dt+1 is less than the prior one, Dt.

that the growth rate is always positive and greater than the discount rate.

assumes the growth rate is always less than the discount rate.

the long run growth rate is postive

Both B and D.

Explanation / Answer

assumes the growth rate is always less than the discount rate.

Since if growth rate is more than discount rate then price of stock would be negative as per dividend growth model which is not practically feasible.Formula for dividned growth model is P0 = D1/(ke-g)

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