The value of a share of common stock depends on the cash flows it is expected to provide, and those flows consist of the dividends the investor receives each year while halding the stock and the proce the investor receives when the stock is sold. The final price includes the ariginal price paid phus an expected capital gain. The actions of the marginal investor determine the equabinum sfock price. Market equibriurn occurs when the stock's price is is intrinsk value. if the stock market is reasonably efficient, ddferences between the stock proce and intrinsic value should not be very large and they should not persist for very long. When investing in common stocks, an irtvestor's goal is to purchase stock that are undervalued (the price is the stock's intrinsic value) and avoid stocks that are overyalued. The value of a stock today can be calculated an the present value of stream of dividends: This is the generalued stock viluation modet, We will now look at 3 dMferent situabons where we can adapt this generalured model to each of these situations to determate a stock's intrinsic value: 1. Constant Growth Stocks; 2. Zero Growth 5tocks; 3. Nonconstant Growth Stocks Constant Growth Stocks: For many companies it is reasonable to predet that dindends wall grow at a constont rate, sa we can rewite the generalized modet as follows. This is known as the constant growh model or Corden model, named after Mrron ). Gordan who developed and pepularued at There are several condibions that must exiut before this firms, but it does mont for many companiet. Which of the follomeng assumptions nould cause the constant grawth stock valuation moded to be invalid? a. The growh rate is nern. b. The gromb rate is negotive. c. The requicd rate of retuin in greater than the growit rate. d. The required rate of return is more than sow. C. Fone of the above assumptions would invahdate thie modet