Question

in the dividend growth model the discount rate and the growth rate play a big part in calculating the value of a stock. those two variables show up in the denominator of the equation for calculating a stock value and as the growth rate (g) increases, the value of the stock a. increases b. decreases c. stays about the same d. doubles for every percent of growth increase

Answer 1

The value of the stock increases as the growth rate increases in the dividend growth model. Therefore, the correct option is a. increases

Step-by-step explanation:

In the dividend growth model, the discount rate and the growth rate play a significant role in calculating the value of a stock. The growth rate (g) refers to the rate at which the dividends of a stock are expected to increase over time.

As the growth rate increases:

• The value of the stock increases.
• The higher growth rate implies that the stock has better potential for future earnings, making it more valuable to investors.

Therefore, option a, increases, is the correct answer.