Unformatted text preview: = (D1/1+ke)+ (D2/1+ke^2)…. Gordon growth mode, price equation: P0= d0(1+g)/(1+ke)+ d0(1+g)^2/(1+ke)^2…. This simplifies to P0= D0(1+g)/(ke-g) >>> P0 = D1/(ke-g) This is the simplest way to think about stock prices. Financial Crisis: • Growth prospects (down), G (down), P0 (down) • Level of uncertainty (up), Ke (up) Fundamental Value of a stock, price or value of a stock is: P0 = sigma i=o to infinity (Di/ (1+ke)^i Bubble exists if P>Fundamental Value P0= sigma i=o to infinity (Di/(1+ke)^i...
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- Fall '11
- Gordon Growth Model, Gordon growth, Gordon growth mode, sigma i=o