According to the dividend growth model, an increase in which of the following will increase the current value of a stock all other things equal? I. dividend amount II. discount rate III. dividend growth rate

Based on the dividend growth model, when the following are increased, the value of the stock would increase:

The dividend growth model is calculated as:

Value of stock = Dividend / ( Discount rate - Growth rate)

For the value of stock to be high, the numerator will have to increase or the denominator will have to decrease.

Increasing the dividend would increase the numerator and increasing the growth rate would decrease the denominator, both of which would increase stock value.

In conclusion, increasing dividend amount and growth rate will increase the value of stock.

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(1.) Dividend amount (111.) Dividend growth rate

Explanation:

The divided growth model is defined by the relation:

Po = D1 / (r - g)

Where Po = current price of stock

r = discount rate and g = growth rate of the stock

D1 = Next year's Dividend

From the Gordon model; The price of stock is directly proportional to the Dividend amount, therefore, an increase in Dividend amount will result in current value of stock and vice versa.

Since the current value of stock increases as Dividend amount increases, therefore an increase in the growth rate of the Dividend will also favor increase in the current value of stock.

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