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In the generalized dividend model, the current stock price is the sum of A) the actual...

In the generalized dividend model, the current stock price is the sum of

A) the actual value of the future dividend stream.

B) the present value of the future dividend stream

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Answer #1

In the generalized dividend model the current stock price is the sum of-

B) the present value of the future dividend stream

The dividend model calculate the present value of the future dividend stream to understand what value one unit of stock holds today. By calculating the present value, we are taking the time value of money into account. The time value explain that $100 today is more valuable than $100 tomorrow.

Do let me know in the comment section in case of any doubt.

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