1. Based on the dividend growth model, the price of a stock will remain constant

1) The correct answer is option B. If the groth rate is constant then the market value of the security will also be contant through out the years.

ID: 2754630 • Letter: 1

Question

1. Based on the dividend growth model, the price of a stock will remain constant if the dividend is cut, provided that the:

A. required return on the stock is proportionately increased.

B. growth rate in dividends remains constant.

C. reduction is offset by an increase in the growth rate.

D. growth rate is decreased by the percent decrease in the dividend.

2. Which one of these statements is correct?

A. Dividends tend to fluctuate in direct relation to changes in annual earnings.

B. Managers are less concerned with the change in the dividend than with the actual amount of

the dividend.

C. Managers tend to avoid smooth dividends as they don't signal the firm's most recent successes.

D. Managers tend to only increase dividends when they believe the increased amount can be

sustained.

The correct answer is option B.

If the groth rate is constant then the market value of the security will also be contant through out the years.

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.