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An increase in which of the following will increase the current value of a stock according to the dividend growth model?
I. dividend amount
II. number of future dividends, provided the current number is less than infinite
III. discount rate
IV. dividend growth rate



a. I and II only

b. III and IV only

c. I, II, and III only

d. I, II, and IV only

Respuesta :

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Answer:

d. I, II, and IV only

Explanation:

The formula for the dividend growth model is given below:

MV=(d(1+g))/r-g

MV=current value of stock

d= annual dividend for the year that has just ended

r=discount rate

g= the expected annual growth rate in dividend rate

From above formula it can be concluded that the MV is directly proportional to the annual dividend to be given by the entity, growth rate in dividend and number of future dividends, provide the current number is less than the infinite.

So the answer shall be d. I, II, and IV only

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