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Assume that the Constant-Growth DDM is the appropriate valuation model for a stock index such as the Dow Jones Industrial Average (DJIA). Assume further that
Assume that the Constant-Growth DDM is the appropriate valuation model for a stock index such as the Dow Jones Industrial Average (DJIA). Assume further that the long-term annual market return for the DJIA is expected to be 8%, the long-term expected growth rate in dividends for the DJIA is expected to be 4.5% and that the DJIA is currently fairly valued at 30,000. If investors change their expectation for the long-term growth rate in dividends from 4.5% to 3.0%, what would be the expected change in the value of the DJIA?
B. -31.00%
A. +31.00%
D. -15.00%
C. +15.00%
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