According to the dividend growth model, which one of the following will increase

Question

According to the dividend growth model, which one of the following will increase the current value of a share of common stock?

Select one:

a. Decrease in the expected dividend for next year

b. Increase in the required return

c. Increase in the market rate of return

d. Decrease in the dividend growth rate

e. Increase in the capital gains yield

Which of the following affect the current price of a stock when using the constant growth formula?

I. dividend growth rate
II. required return
III. dividend paid last year
IV. expected dividend next year

Select one:

a. I, II, and IV only

b. I and III only

c. II and IV only

d. I, II, III, and IV

e. II, III, and IV only

Explanation / Answer

e. Increase in the capital gains yield

the above is the answer

because capital gains measures the future sales price or P1 , so if capital gains yield is higher that means there will be more current value after discounting the higher future sales price.

d. I, II, III, and IV

the above is the answer

because all these are components of the dividend model.

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