Question

In the generalized dividend model, if the expected sales price is in the distant future, what is the impact on the model's accuracy?

1) The model's accuracy will increase
2) The model's accuracy will decrease
3) The model's accuracy will remain the same
4) Cannot be determined

Answer 1

The accuracy of the generalized dividend model decreases when the expected sales price is in the distant future.

Step-by-step explanation:

In the generalized dividend model, if the expected sales price is in the distant future, the model's accuracy will decrease. This is because predicting sales prices far into the future involves more uncertainty and potential changes in market conditions, making accurate predictions more challenging.

For example, if a company is using the generalized dividend model to forecast its stock price several years ahead, factors such as changes in consumer preferences, technological advancements, and economic conditions can significantly impact the accuracy of the model. Therefore, it is generally more reliable to use the model for shorter-term predictions where there is greater visibility and less uncertainty.