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7 Cards in this Set
- Front
- Back
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Purchasing stock gives you cash in two ways |
1 - company pays dividends 2 - sell shares, either to another investor in the market or back to the company *this may involve receiving capital gains or losses |
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Price of stock |
Present value of all expected future dividends |
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Zero Dividend Growth Model |
dividends expected at regular intervals this is a perpetuity and the present value of expected future dividends uses the perpetuity formula P0 = D/R
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if required return rises - if constant dividend jumps up - |
- The stock Price falls - The Stock Price Rises |
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Dividend Growth Model (Gordon Model or Dividend Discount Model) |
Dividends are expected to grow at a constant percent per period, g. P0 = D1/R-g |
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Originator of the DGM |
Professor Myron U of Toronto 1920-Sept 2010 |
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Stocks with Non-constant Growth (Supernormal Growth model) |
Compute Dividends until growth levels off Find expected future stock price Find present value of the expected future cash flows |
