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According to the dividend discount model of stock valuation, holding other factors constant an decrease in...

According to the dividend discount model of stock valuation, holding other factors constant an decrease in investors required rate of return for a stock increases the stock's price.

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Expert Solution


Stock Price : Price of any security is present value of future cash flows it, that are discounted at specified discount rate.

Stock Price = D1 / [  Ke - g ]

D1 = D0 ( 1 +g )

D1 - Div after 1 Year

P0 = Price Today

Ke - required Ret

g - Growth Rate.  

If the required Rate is decreased, denominator will be decreased and Hence price will increase.

The satement made is correct.

jeff jeffy answered 2 years ago
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