Chapter 6 (DDM Formulas)

# Chapter 6 (DDM Formulas) - ± Step 2 Estimate stock price...

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Common Stock Valuation (DDM) ± The DDM with T Periods () () () () T T 3 3 2 2 1 0 k 1 D k 1 D k 1 D k 1 D P + + + + + + + = L ± The Constant Growth DDM with T Periods g k if D T P g k if k 1 g 1 1 g k g) (1 D P 0 0 T 0 0 = × = + + + = ± The Constant Perpetual Growth DDM () k) g : (Important g k D g k g 1 D P 1 0 0 < = + × = ± The Two-stage Growth DDM 2 2 0 T 1 T 1 1 1 0 0 g k ) g (1 D k 1 g 1 k 1 g 1 1 g k ) g (1 D P + + + + + + + = ± Nonconstant Growth ± Step 1: Value dividends over the period of rapid growth
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Unformatted text preview: ± Step 2: Estimate stock price at the horizon year, when growth should have settled down ± Step 3: Calculate the PV of the stock by summing the PV of dividend up to the horizon year and the PV of the tock price at the horizon. stock price at the horizon. FIN 355-Chapter 6 Instructor: Shuming Liu...
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