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Unformatted text preview: but one who, when he is ruined, is ruined in a
conventional way along with his fellows, so that no one can
really blame him.” – Keynes 1931
“The group to which an individual belongs is the ground upon
which he stands, which gives or denies him social status, gives
or denies him security and help.” – Lewin 1940
The social structure of markets and the group dynamics of market
participants are key elements of eﬀective ﬁnancial regulation and
risk management. Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 35/ 35 Price as PV of Future Cash Flows
Our basic pricing paradigm is:
T Price =
t =1 CFt
(1 + rS )t For equities we interpret this as follows:
Price = Value Per Share (V0 ).
T = ∞. CFt = expected dividends per share (Dt ).
rS = required rate of return on stock. Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 3/ 11 The DDM for Constant Dividend Growth
The Gordon Growth Model (Gordon & Shapiro, 1956) Assume a constant dividend growth rate g : Dt = D0 (1 + g )t V0 = ∞
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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.
- Fall '08