Stock Valuation and Dividend Discount Models Quiz

Test your knowledge on stock valuation with questions on DDM, GGM, P/E ratio, beta, and more. Explore methods, formulas, and factors affecting accuracy.

Practice Learn Test

Which of the following is a method used for stock valuation?

PE Ratio

Bond Yield

Interest Rate

Market Cap

What does the Dividend Discount Model (DDM) calculate?

Present value of future dividends

Historical stock prices

Company revenue

Market capitalization

In the Gordon Growth Model, 'g' stands for:

Growth rate of dividends

Global market index

Government bonds

Gross revenue

What is the formula for the Dividend Discount Model (DDM)?

DDM = P/E Ratio

DDM = Dividend Yield

DDM = Dividend / (Required Rate of Return - Growth Rate)

DDM = Dividend * Growth Rate

What is the main assumption made in the Dividend Discount Model (DDM)?

Constant dividend growth rate

Variable dividend payout ratio

Fluctuating dividend yield

Unpredictable stock prices

Which of the following is NOT a limitation of using the Dividend Discount Model (DDM)?

Difficulty in predicting future dividends

Assumption of constant growth may not hold true

Cannot be applied to non-dividend paying stocks

DDM only considers historical stock performance

What happens to a stock's intrinsic value in the Dividend Discount Model (DDM) if the required rate of return increases?

Increases

Decreases

Remains unchanged

Cannot be determined

What is the relationship between the P/E ratio and stock valuation?

Inverse relationship

Direct relationship

No relationship

Depends on the industry

Which of the following factors can affect the accuracy of the Dividend Discount Model (DDM)?

Company's brand value

Inflation rate

Market sentiment

All of the above

#10

What is the formula for the Gordon Growth Model?

P = D / (r - g)

P = D * g / r

P = D / r + g

P = D + r / g

#11

What does the term 'r' represent in the Gordon Growth Model?

Risk-free rate

Required rate of return

Dividend growth rate

Discount rate

#12

Which of the following is a limitation of the Gordon Growth Model (GGM)?

Assumes constant dividend growth indefinitely

Does not consider the risk factor

Can only be applied to high-growth stocks

Does not incorporate market trends

#13

How does a stock's beta value affect its sensitivity to market movements?

Higher beta indicates lower sensitivity

Lower beta indicates higher sensitivity

Beta has no impact on sensitivity

Beta measures volatility, not sensitivity

#14

What modification is made to the Gordon Growth Model in the Two-Stage Dividend Discount Model?

Multiple discount rates are used

Different dividend growth rates are applied in each stage

The formula remains unchanged

Terminal value is disregarded