Which of the following correctly illustrates the infinite period dividend discount model?
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A. B. C. D. E. F.A
The traditional equation for the infinite period dividend discount model is as follows: Value of common stock = D1 / (k - g)
Where: D1 = the dividend at t1, k = the required rate of return, and g = the assumed growth rate of dividends.
Remember that the dividend at t1, which is characterized as "D1" is calculated by multiplying the dividend at t0 by (1 + growth rate of dividends). This equation will produce logical results regardless of whether growth or contraction of dividends is expected in the future.