It is overvalued by about 12 equities i r j hawkins

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Unformatted text preview: 86, 692 ( rs − g ) (0.082 − .02) The Total SA market capitalization was EUR 97,286. It is overvalued by about 12%. Equities I: R. J. Hawkins Econ 136: Financial Economics 12/ 20 The Two-Stage Dividend Discount Model A Portfolio of Gordon Growth Models (GGMs) 1 An initial high-growth phase at rh and gh . . . 2 . . . followed by a long-term stable-growth state at rs and gs . high growth phase V0 = ∞ ￿ D0 (1 + gt )t t =1 (1 + rt )t = ￿ ￿￿ ￿ T ￿ D0 (1 + gh )t t =1 (1 + rh )t ￿ stable growth state ￿￿ ￿ ∞ ￿ DT (1 + gs )t + (1 + rs )t t =T +1 ￿ ￿￿ ￿ A forward GGM high growth phase stable growth state ￿ ￿￿ ￿￿ ￿￿ ￿ ∞ ∞ ∞ ￿ D0 (1 + gh )t ￿ DT (1 + gh )t ￿ DT (1 + gs )t = − + (1 + rh )t (1 + rh )t (1 + rs )t t =1 t =T +1 t =T +1 ￿ ￿￿ ￿￿ ￿￿ ￿￿ ￿￿ ￿ A spot GGM A forward GGM Equities I: R. J. Hawkins A forward GGM Econ 136: Financial Economics 13/ 20 The Two-Stage Dividend Discount Model A Portfolio of Gordon Growth Models (GGMs) Recalling our equations for (i) the GGM and (ii) discounting to create a forward: high growth phase stable growth state ￿ ￿￿ ￿￿ ￿￿ ￿ ∞ ∞ ∞ ￿ D0 (1 + gh )t ￿ DT (1 + gh )t ￿ DT (1 + gs )t V0 = − + (1 + rh )t (1 + rh )t (1 + rs )t t =1 t =T +1 t =T +1 ￿...
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This note was uploaded on 01/23/2014 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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