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In: Economics

According to the Gordon growth model, which of the following can cause the value of a...

According to the Gordon growth model, which of the following can cause the value of a stock to increase? Select one:

A. lower expected growth rate of dividends B. increased idiosyncratic risk C. lower risk-free interest rates D. increased required return on equity

Solutions

Expert Solution

The answer is (c) lower risk-free interest rates

If the risk-free interest rates are lower than the return on stock will also fall. Since there is an inverse relationship between the price and interest rates, the price of the stock will increase and thus the stock will increase in value.

All other options are incorrect as they will decrease the value of a stock.

Rahul Sunny answered 2 years ago
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