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constant growth model notes

D1 1rs1 d1 d01g d0 1g

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Unformatted text preview: D0 (1+g)^t G constant = discounted dividend formula converges to: D1 / (1+rs)^1 D1 = D0(1+g) = D0 (1g) / rs – g Dividend vs growth Expected rate of return = D1/rs – g rs = (D1/P0) + g Rs = dividend yield + growth rate D1/P0 = dividend yield G = growth rate Investors return comes from: 1) stock’s dividend 2) stock’s growth in future Growth rate = (1 – payout ratio)ROE Stock price goes up at same rate as dividend Constant dividend = D1 / rs Constant growth = D1 / rs  ­ g...
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