Dividend Discount Model - use of growth factor
How to use growth (g) model in such ques. I am not able to understand this concept.
This one is from CFAI mock.
w/o g, answer is = 3/(15%-17.5%*40%)=37.5
with g, answer is = 3*(1+17.5%*40%)/(15%-17.5%*40%)=40.13
Q. An investor gathers the following information about a company:
Current earnings per share
Current dividend per share
Required rate of return
Return on equity (ROE)
Using the dividend discount model, the value of the company’s stock is closest to:
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