Question

The underlying assumption of the dividend discount model is that a stock is worth: A. the present value of the future dividends the company pays. B. an amount computed as the next annual dividend divided by the required rate of return. C. the same amount as any other stock that pays the same current dividend and has the same required rate of return.

Answer 1

A. the present value of the future dividends the company pays.

Step-by-step explanation:

The net present value (NPV) of a project can be defined as the difference between present value of cash-inflow into a project and that of cash-outflow over a specific period of time. Thus, it is simply the value of all cash-flows for a project with respect to its life span.

The underlying assumption of the dividend discount model is that a stock is worth the present value of the future dividends the company pays.

Generally, all financial assets or securities can be securitized i.e turned into a tradable item that can be used to generate money for a potential investor or the owner of the financial asset.

For example, a mortgage backed security can be used as securitization.