DDM 2nd Stage: Finding r

CFA Level II Equities
#1

Hi,

I find difficult to estimate the required return in a 2n Stage model ? Would anyone kindly advise on a formula or method to quickly solve for r ?

Thanks

Alex

#2

On the exam, they’ll give you three choices.

Try the middle one: answer choice b).

If you get the correct stock value, you’re done: b) is correct.

If you get a value that is too low, you’re done: a) is correct.

If you get a value that is too high, you’re done: c) is correct.

#3

Are we talking about the H model here?

#4

We are talking about the 2nd Stage model

eg: Vo= D1 / (1*r)^1 + D2/(1*r)^2 etc…

Solving for r

Thanks a lot S2000, this has been very helpfull

#5

My pleasure.