Question

The constant dividend growth formula P₀ = Div₁/(r - g) assumes:
I) that dividends grow at a constant rate g, forever; II) r > g; III) g is never negative

I only

II only

I and II only

III only

Most of the trading on the NYSE is in ordinary common stocks.

True

False

The return that is expected by investors from a common stock is also called its market capitalization rate, or cost of equity capital.

True

False

All securities in an equivalent risk class are priced to offer the same expected return.

True

False

Answer 1

1. It grows at a constant rate in dividend discount model, and the expected rate of return is always higher than growth.

Growth can be negative at times.

Correct answer is option (C) I and II only

2. Given statement is TRUE because New York stock exchange trading is in ordinary common stocks.

3. The given statement is FALSE because the rate of return which is expected by investors is known as expected rate of return.

4.The given statement is TRUE as the prices who have the similar risk will have similar return