CFA Level 1: Infinite Period Model Assumptions

Infinite Period Model Assumptions

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Question

The infinite period ________ model assumes that k is greater than g.

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Explanations

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A. B. C. D.

C

The infinite period Dividend Discount Model has the following assumptions:

1. Dividends grow at a constant rate

2. The constant growth rate will continue for an infinite period

3. The required rate of return (k) is greater than the infinite growth rate (g). If it is not, the model gives meaningless results because the denominator becomes negative.

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