The formula consists of taking the DPS in the period by (Required Rate of Return – Expected Dividend Growth Rate). For example, the value per share in Year is calculated using the following equation: Value Per Share ($) = $5.15 DPS ÷ (8.0% Ke – 3.0% g) = $103.00 From the com...
What is the Gordon Growth Model Formula? Three variables are included in the Gordon Growth Model formula: (1) D1 or the expected annual dividend per share for the following year, (2) k or the requiredrate of return, and (3) g or the expected dividend growth rate. With these variables,...
The Gordon Growth Model (GGM) is a powerful tool in the world of finance, allowing investors to estimate the intrinsic value of a stock based on the expected future dividends and their growth rate. By understanding this model and its formula, investors can make informed decisions about their i...
g Eg = for all j. As an extreme case, an investor certain that the mean dividend growth rate is a fixed but unknown parameter of the economy could extrapolate it from period to period and substitute the resulting estimate g t for g in the Gordon formula. However, Jensen’s inequality sh...
What is the algebraic formula for the Gordon Growth model? Explain why investors look at a stock's P/E ratio rather than its price to determine if the stock is cheap or expensive. What are the factors you consider before buying stock for long term investment? Fi...