Which of the following statements about constant growth model is NOT CORRECT? Th

Question

Which of the following statements about constant growth model is NOT CORRECT? The constant growth model assumes that the firm's dividends will grow forever at a constant rate. Shareholders will earn a constant return from a constant growth firm. A constant growth firm's share price is expected to grow at a constant rate. For a constant growth firm, its expected dividend yield will be a constant over time and equal to the difference between the required return on equity and the estimated constant growth rate. a. b. C. d.

Explanation / Answer

under constant growth model, it is assumes that firm will pay regular dividend at constat growth rate. require rate of return for shareholder is constant forever. dividend yeild in constant growth model is equal to required rate of return minus growth rate.

So option (C), "A constant growth firm's share price is expected to grow at constant rate" is not correct about constant growth model".

option (C) is correct answer.

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