Schweser Book 3:
Page 138: Explanation of Q#14.
When I am reading question I am simply applying formula and calculating stock value but my answer is wrong because I am not taking decline in growth as -ve. The same concept is being applied in CFAI Volume 4, Q6 and Example 9.
My question is why we are taking decline in dividend growth as –ve.
Regards
why wouldn’t you? This is just plug and play, if growth is positive, then g is positive, and vice versa. Then just plug into the equation V0 = D1/(r-g)
Getting confused by wordings because in questions they are normally using decreased by xx% or will decline forever at an xx%.
From these statements I am getting idea that it will reduce to xx% and that’s it. May be I am complicating it.