Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

In the dividend discount model (DDM), the value of a stock is primarily determined by which of the following?

The market price of similar stocks

The company's historical dividend payments

The book value of the company's assets

The present value of all expected future dividends

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Verified step by step guidance

Understand the Dividend Discount Model (DDM): The DDM is a method used to value a stock by calculating the present value of all expected future dividend payments. It assumes that dividends are the primary source of value for shareholders.

Identify the key formula for DDM: The general formula for the DDM is \( P_0 = \frac{D_1}{r - g} \), where \( P_0 \) is the current stock price, \( D_1 \) is the expected dividend in the next period, \( r \) is the required rate of return, and \( g \) is the expected dividend growth rate.

Clarify the components: \( D_1 \) represents the future dividend, \( r \) reflects the investor's required rate of return (often based on risk and market conditions), and \( g \) is the growth rate of dividends over time. These components are essential for determining the stock's value.

Explain the concept of present value: The DDM calculates the present value of future dividends by discounting them back to today using the required rate of return. This reflects the time value of money, where future cash flows are worth less than immediate cash flows.

Conclude the primary determinant: The value of a stock in the DDM is determined by the present value of all expected future dividends, not by market price, historical dividend payments, or book value of assets.