The constant-growth version of the DDM asserts that if dividends are expected to grow at a constant
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The constant-growth version of the DDM asserts that if dividends are expected to grow at a constant rate forever, the intrinsic value of the stock is determined by the formula V0 = _____ D1 k − g This version of the DDM assumes a constant value for g. There are more sophisticated multistage versions of the model for more-complex environments. When the constant-growth assumption is reasonably satisfied and the stock is selling for its intrinsic value, the formula can be inverted to infer the market capitalization rate for the stock: P-69 k = ___ D1 P0
+ g
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Related Book For
ISE Investments
ISBN: 9781266085963
13th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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