A stock analyst finds a value of a stock today (V₀) using the dividend discount model (DDM) with constant growth. The analyst calculates a value of V₀ = $83.33/share. The analyst's forecast of the stock price 10 years from today (V₁₀) is $112/share. What is the analyst's assumption about the growth rate (g) in dividends per share?

g = 4%

g = 3%

g = 2%

g = 5%

2.

A stock has an expected one-year holding period return (HPR) of 9%. The expected dividend yield is 3%.

True or false: The expected price appreciation (capital gain) is 6%.

True

False

3.

An analyst is finding the value of a stock (V₀) with the constant growth dividend discount model (DDM). The analyst assumes D₀ = $4, and g = 3%. The analyst is not sure whether to use k of 8% or 10% or 12%.

True or false: Given D₀ = $4 and g = 3%, of the 3 k values, k = 8% would provide the highest V₀.

True

False

4.

The correct formula for the dividend discount model (DDM) with constant growth (g) is V₀ =

		D1/(g - k)
		D1/(k + g)
		D1/(k - g)
		(D1 + g)/k