Chartered Financial Analyst Level 2

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Answer: The dividend discount model

The dividend discount model (DDM) is most appropriate because: - The company has started paying dividends (DDM requires dividend payments) - The CEO expects constant growth in the future (DDM assumes constant growth) - The company has limited trading history (IPO was only 6 months ago), making CAPM/Fama-French less reliable - The bond yield plus risk premium approach requires reliable debt data, which may be limited with only one private placement bond DDM is well-suited for companies with stable dividend policies and predictable growth patterns.

Author: LeetQuiz Editorial Team

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Answer: The dividend discount model

Author: LeetQuiz Editorial Team

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54 Three years ago, a company issued a bond using a private placement. The company has no other debt. Six months ago, the company undertook an IPO and started paying dividends. The company's CEO expects constant growth in the future. Which of the following methods is most appropriate to estimate the company's required return on equity?

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The Fama-French model

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