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Basic Question 0 of 11
The Gordon Growth Model assumes that ______
II. the discount rate is greater than the growth rate.
III. the growth rate increases over time.
I. each future dividend is (1+g) greater than the prior one.
II. the discount rate is greater than the growth rate.
III. the growth rate increases over time.
User Contributed Comments 9
| User | Comment |
|---|---|
| danlan | The growth rate is constant. |
| valeris | AS far as I goes, I'd say the correct answer is 'dividend is g greater than previous'. |
| garethdav | is this gordon's growth model? |
| TheHTrader | I guess "(1+g)" implies the multiplier to get the next dividend. |
| Vikku | You are right TheHTrader. |
| bundy | Growth rate constant |
| thecfaguy | Isn't answer choice II an assumption of the infinite period DDM ? |
| 2014 | Page number 282 for assumtions of Gorden Model: same words used in notes: "The dividend growth rate is strictly less than required rate of return" Second option is correct hence Required rate of return is constant overtime Dividend growth is forever, perpetual, never changes |
| edushyant | II is correct assumption, coz if the discount rate (ke) is not greater than growth rate(gc) then model breaks down as denominator will be negative! |
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Learning Outcome Statements
contrast the use of arbitrage and replication concepts in pricing forward commitments and contingent claims
CFA® 2025 Level I Curriculum, Volume 5, Module 8.