Question #61
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 24
Status: Correct
Correct Answer: A
Question
Which of the following dividend discount models has the limitation that a sudden decrease to the lower growth rate in the second stage may NOT be realistic?
Answer Choices:
A. Two-stage dividend discount model
B. H model
C. Gordon growth model
Explanation
The two-stage DDM has the limitation that a sudden decrease to the lower growth rate in
the second stage may not be realistic. Further, the model has the difficulty in trying to
estimate the length of the high-growth stage.