Question

1.You are attempting to value a stock in a mature industry that is steadily shrinking in size. Of the stock valuation models studied, the most appropriate is the . a. perpetuity model b. constant growth model c. supernormal growth model d. nonconstant growth model.2. Stocks are different from bonds because _____________ a. Stocks, unlike bonds, are major sources of funds b. Stocks, unlike bonds, represent ownership
c. Stocks, unlike bonds, give owners legal claims to payments
d. Bonds, unlike stocks, represent voting ownership

Answer 1

Answer:

1) The correct answer is letter "B": constant growth model.

2) The correct answer is letter "B": Stocks, unlike bonds, represent ownership.

Explanation:

1) The Constant Growth Model -also known as the Gordon Growth Model, is used to calculate the intrinsic value of a stock today, based on the stock's future dividends. It is widely used by investors and analysts to compare the predicted stock value versus the actual market price. In that sense, a specialist can determine if the stock is undervalued or overvalued.

2) The main difference between stocks and bonds is that the first gives partial ownership of a business to the shareholder while bonds are debts that are issued by an organization with the promised to be paid at a certain point in the future based on a rate of interest.