Gordon Growth Model

外汇网2021-06-19 13:31:53 182

A model for determining the intrinsic value of a stock, based on a future series of pidends that grow at a constant rate. Given a pidend per share that is payable in one year, and the assumption that the pidend grows at a constant rate in perpetuity, the model solves for the psent value of the infinite series of future pidends.

Where:

D = Expected pidend per share one year from now

k = Required rate of return for equity investor

G = Growth rate in pidends (in perpetuity)

Taobiz explains Gordon Growth Model

Because the model simplistically assumes a constant growth rate, it is generally only used for mature companies (or broad market indices) with low to moderate growth rates.

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