The constant growth model, which is used to determine the price of a share of common stock, can also be used to determine the price of perpetual preferred stock or any other perpetuity, So the statement is true.
What is constant growth model?
- The Constant Growth Model is a method of valuing stocks. It is also known as the Gordon Growth Model because it assumes that the company's dividends will continue to grow at a constant rate indefinitely. It assists investors in determining the current fair value of a stock based on future dividend payments.
- If the difference is negative or the growth rate exceeds the return, the model will produce a negative equity value, which is not possible. As a result, neither option can be used for the constant growth model.
- It aids in understanding a stock's future return based on its history and performance. The constant growth model is a method of assessing a stock or investment. The constant growth model assumes the company's dividends will remain constant.
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