Gordon Growth Model

Gordon Growth Model
A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. Given a dividend per share that is payable in one year, and the assumption that the dividend grows at a constant rate in perpetuity, the model solves for the present value of the infinite series of future dividends.

Gordon Growth Model


Where:
D = Expected dividend per share one year from now
k = Required rate of return for equity investor
G = Growth rate in dividends (in perpetuity)

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.


Investment dictionary. . 2012.

Игры ⚽ Нужно сделать НИР?

Look at other dictionaries:

  • Gordon growth model — A model used to value businesses or shares based on applying a present value formula to future dividends. It assumes that the value of shares is the present value of future dividends, which will grow at a fixed rate g, and is expressed in the… …   Big dictionary of business and management

  • Exogenous growth model — The Exogenous growth model, also known as the Neo classical growth model or Solow growth model is a term used to sum up the contributions of various authors to a model of long run economic growth within the framework of neoclassical… …   Wikipedia

  • Neoclassical growth model — See also: Ramsey growth model The neoclassical growth model, also known as the Solow–Swan growth model or exogenous growth model, is a class of economic models of long run economic growth set within the framework of neoclassical economics.… …   Wikipedia

  • Constant-growth model — Also called the Gordon Shapiro model, an application of the dividend discount model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate. The New York Times Financial Glossary …   Financial and business terms

  • constant-growth model — Also called the Gordon Shapiro model, an application of the dividend discount model that assumes (1) a fixed growth rate for future dividends, and (2) a single discount rate. Bloomberg Financial Dictionary …   Financial and business terms

  • Gordon model — The Gordon growth model is a variant of the discounted cash flow model, a method for valuing a stock or business. Often used to provide difficult to resolve valuation issues for litigation, tax planning, and business transactions that don t have… …   Wikipedia

  • Fed model — The Fed model is a theory of equity valuation used by some security analysts that hypothesizes a relationship between long term treasury notes and the expected return on equities. According to this valuation model, in equilibrium the real yield… …   Wikipedia

  • Multistage Dividend Discount Model — An equity valuation model that builds on the Gordon growth model by applying varying growth rates to the calculation. Under the multistage model, changing growth rates are applied to different time periods. Various versions of the multistage… …   Investment dictionary

  • Gordon Johnson (child welfare advocate) — Gordon Johnson is the Founder, President and CEO of Neighbor To Family, Inc., a not for profit foster care organization whose mission is keeping siblings together. Johnson was born in 1933 in Long Branch, New Jersey. He earned a bachelor’s degree …   Wikipedia

  • Myron J. Gordon — Post Keynesian economics Born October 15, 1920(1920 10 15) Died …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”