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CA Final Dividend Discount Model — practice questions

Explore 60 free Dividend Discount Model questions in CA Final Strategicfinancialmanagement. Open each question or exercise to read its content, reference answers and available explanation.

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Dividend Discount Model questions and exercises with answers

Showing questions 1–30 of 60.

A dividend discount model derives share value from what?Read the answer and worked solution →The constant-growth form of the dividend discount model is also called which model?Read the answer and worked solution →In the dividend discount model, total return on a stock equals which sum?Read the answer and worked solution →In the dividend discount model, the cost of equity capital is treated as a proxy for what?Read the answer and worked solution →In the Gordon model, what happens to the share price as growth g approaches the required return r?Read the answer and worked solution →A company pays a constant dividend forever with no growth. Which expression gives its share price?Read the answer and worked solution →Which assumption of the Gordon model is often criticised as unrealistic?Read the answer and worked solution →The price from the Gordon model is highly sensitive to which input?Read the answer and worked solution →In the Gordon formula, what does k stand for from the equity investor's view?Read the answer and worked solution →The Gordon equation can be rearranged to estimate which quantity?Read the answer and worked solution →Next dividend is Rs 5, required return 12 percent, growth 7 percent forever. What is the Gordon value?Read the answer and worked solution →A share just paid Rs 4 and dividends grow 5 percent forever; required return is 15 percent. What is its value?Read the answer and worked solution →A share pays a flat Rs 6 dividend forever and investors require 12 percent. What is the share worth?Read the answer and worked solution →A share trades at Rs 80, next dividend is Rs 4 and growth is 6 percent. What cost of equity does the Gordon model imply?Read the answer and worked solution →A share is priced at Rs 120 with expected dividend Rs 6 and growth 4 percent. What is the implied required return?Read the answer and worked solution →Last dividend Rs 2, growth 10 percent, price Rs 55. What required return does Gordon imply?Read the answer and worked solution →In finance, a return is best described as what?Read the answer and worked solution →What does a negative return mean for a positive investment?Read the answer and worked solution →Return on investment (ROI) measures what?Read the answer and worked solution →A return converted to a one-year basis is commonly called what?Read the answer and worked solution →An investor buys a share at Rs 40, receives Rs 2 dividend and sells at Rs 46. What is the holding period return?Read the answer and worked solution →A stock bought at Rs 100 gives Rs 4 dividend and ends the year at Rs 109. What is its total return?Read the answer and worked solution →A 2 percent USD deposit is held while the dollar rises 10 percent against the yen. What yen return results?Read the answer and worked solution →Which return measure is also called the force of interest?Read the answer and worked solution →A stock's daily logarithmic return is 0.14 percent. With 250 trading days, what is the annualized log return?Read the answer and worked solution →In a multi-period return calculation, each sub-period return is based on which value?Read the answer and worked solution →The same deposit's return differs in another currency. Why?Read the answer and worked solution →A fund gains 20 percent in year one and loses 20 percent in year two. What is its overall two-year result?Read the answer and worked solution →A fund rises 50 percent in one year and then falls 50 percent. What is the net change over both years?Read the answer and worked solution →What does the capital asset pricing model estimate for an asset?Read the answer and worked solution →

Worked practice questions

A dividend discount model derives share value from what?

  1. Last traded market price
  2. Replacement cost of assets
  3. Discounted future dividends
  4. Net asset value per share
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Correct answer: C. Discounted future dividends

The model sums the expected dividend payments to shareholders and discounts each back to its present value.

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The constant-growth form of the dividend discount model is also called which model?

  1. Fama-French model
  2. Black-Scholes model
  3. Gordon growth model
  4. Markowitz model
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Correct answer: C. Gordon growth model

Myron Gordon's name is attached to the version in which dividends grow at a constant rate forever.

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In the dividend discount model, total return on a stock equals which sum?

  1. Dividend income plus capital gain
  2. Earnings plus retained debt
  3. Capital gain minus interest paid
  4. Dividend income minus capital gain
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Correct answer: A. Dividend income plus capital gain

Holders earn cash dividends and price appreciation, and the two together form the full return on the share.

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