GORDON GROWTH MODEL EXAM - (30 QUESTIONS) UP-TO-DATE ACTUAL EXAM
QUESTIONS AND 100% ACCURATE SOLUTIONS | VERIFIED ANSWERS - INSTANT PDF
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Candidate Name: ____________________________
Candidate ID: ________________________________
Date: ______________________________________
Examination Centre: __________________________
Time Allowed: 90 Minutes
Total Questions: 30
Instructions to Candidates:
Read all questions carefully before answering. This examination assesses your ability to
apply the Gordon Growth Model (Dividend Discount Model with constant growth) in
valuation, financial analysis, and decision-making scenarios. Select the most appropriate
answer for each question. Calculators are permitted. Show structured reasoning mentally
,for accuracy, although only one answer is required per question. Each question carries
equal marks.
Disclaimer:
This is an original simulation exam designed for educational purposes. It is inspired by
widely used financial modeling and valuation assessment formats but does not replicate
any official certification exam.
Core Competency Areas:
Dividend Discount Model (DDM) Theory
Gordon Growth Model Application
Cost of Equity Estimation
Growth Rate Assumptions
Equity Valuation Techniques
Sensitivity and Limitation Analysis
,This examination evaluates your mastery of perpetual dividend valuation under stable
growth conditions. Candidates are expected to interpret financial data, assess
assumptions critically, and compute intrinsic equity values accurately using advanced
financial reasoning.
Q1.
A mature utility company just paid a dividend of $2.00 per share. Dividends are expected
to grow at a constant rate of 4% annually. If the required rate of return is 9%, what is the
intrinsic value of the stock?
A. $40.00
B. $41.60
C. $45.00
D. $50.00
Correct Answer: 🔴 B. $41.60
Explanation: 🟡 The Gordon Growth Model formula is P₀ = D₁ / (r − g). First compute D₁ = 2
× 1.04 = 2.08. Then P₀ = 2.08 / (0.09 − 0.04) = 2..05 = 41.60. Option A ignores growth
adjustment, C and D overestimate value.
, Q2.
An analyst increases the growth rate assumption from 3% to 5% while keeping all else
constant. What is the effect on valuation?
A. Decreases valuation
B. No change
C. Increases valuation
D. Makes valuation undefined
Correct Answer: 🔴 C. Increases valuation
Explanation: 🟡 Increasing growth reduces the denominator (r − g), increasing stock value.
Option A is incorrect as higher growth boosts value. Option B ignores model sensitivity.
Option D only applies if g ≥ r.
Q3.
A firm has a required return of 10% and growth rate of 10%. What happens in the Gordon
Growth Model?
A. Value equals zero
B. Value is infinite/undefined
QUESTIONS AND 100% ACCURATE SOLUTIONS | VERIFIED ANSWERS - INSTANT PDF
DOWNLOAD
Candidate Name: ____________________________
Candidate ID: ________________________________
Date: ______________________________________
Examination Centre: __________________________
Time Allowed: 90 Minutes
Total Questions: 30
Instructions to Candidates:
Read all questions carefully before answering. This examination assesses your ability to
apply the Gordon Growth Model (Dividend Discount Model with constant growth) in
valuation, financial analysis, and decision-making scenarios. Select the most appropriate
answer for each question. Calculators are permitted. Show structured reasoning mentally
,for accuracy, although only one answer is required per question. Each question carries
equal marks.
Disclaimer:
This is an original simulation exam designed for educational purposes. It is inspired by
widely used financial modeling and valuation assessment formats but does not replicate
any official certification exam.
Core Competency Areas:
Dividend Discount Model (DDM) Theory
Gordon Growth Model Application
Cost of Equity Estimation
Growth Rate Assumptions
Equity Valuation Techniques
Sensitivity and Limitation Analysis
,This examination evaluates your mastery of perpetual dividend valuation under stable
growth conditions. Candidates are expected to interpret financial data, assess
assumptions critically, and compute intrinsic equity values accurately using advanced
financial reasoning.
Q1.
A mature utility company just paid a dividend of $2.00 per share. Dividends are expected
to grow at a constant rate of 4% annually. If the required rate of return is 9%, what is the
intrinsic value of the stock?
A. $40.00
B. $41.60
C. $45.00
D. $50.00
Correct Answer: 🔴 B. $41.60
Explanation: 🟡 The Gordon Growth Model formula is P₀ = D₁ / (r − g). First compute D₁ = 2
× 1.04 = 2.08. Then P₀ = 2.08 / (0.09 − 0.04) = 2..05 = 41.60. Option A ignores growth
adjustment, C and D overestimate value.
, Q2.
An analyst increases the growth rate assumption from 3% to 5% while keeping all else
constant. What is the effect on valuation?
A. Decreases valuation
B. No change
C. Increases valuation
D. Makes valuation undefined
Correct Answer: 🔴 C. Increases valuation
Explanation: 🟡 Increasing growth reduces the denominator (r − g), increasing stock value.
Option A is incorrect as higher growth boosts value. Option B ignores model sensitivity.
Option D only applies if g ≥ r.
Q3.
A firm has a required return of 10% and growth rate of 10%. What happens in the Gordon
Growth Model?
A. Value equals zero
B. Value is infinite/undefined
