11. The dividend discount valuation model equates the current stock price to: A) All future expected dividends B) All future expected dividends discounted by the weighted average cost of capital C) The current dividend divided by current earnings per share D) All future expected dividends discounted by the cost of equity capital

The dividend discount valuation model equates the current stock price to D) All future expected dividends discounted by the cost of equity capital.

Explanation:

The dividend discount valuation model also known as DDM is used for stock valuation purposes. It follows that the stock price is based upon the sum of all the future expected dividends that the stock will pay discounted back to their present value. Thus, it values the stock based on the present value of all the future expected dividends.

As dividends are something that arise from shares or equity capital, the required rate of return on equity capital is taken as the discount rate to convert the future stocks to their present value today.

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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