1. Infinite growth is a problem with the dividend discount model because: The ex

Question

1. Infinite growth is a problem with the dividend discount model because:

The expected stream of dividends is infinite

At reasonably high discount rates, such as 12 percent, dividends received in the distant future (40 or 50 years from now) are worth very little today

Dividend growth rates eventually become very small

The statement is incorrect – infinite growth is not a problem with the dividend discount model because at reasonably high discount rates, such as 12 percent, dividends received in the distant future are worth very little today

Explanation / Answer

The given statement is incorrect because the infinite growth is not a problem with dividend discount model. The reason is generally dividend received in the future at higher discount rates are worth very little today.

Hence, the correct answer is option D.

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