Question

Two investors have the same required return. They also have identical expectations about a stock's expected dividend and growth rate, and both agree it is a constant growth company. Investor A plans to hold the stock for 1 year and Investor B plans to hold it for 10 years. Both investors will estimate the same value for the stock.

a)True
b)False

Answer 1

The statement is false. Investor A and Investor B will estimate different values for the stock.

Step-by-step explanation:

The statement is false. Investor A and Investor B will estimate different values for the stock. While they may have the same required return, their holding periods will have an impact on their estimated values. When valuing a constant growth company, the longer the holding period, the higher the estimated value. This is because the longer holding period allows for more future dividends and capital gains, which increases the overall value of the stock.