Quick question: Does the H-model math actually work out such that the long-term growth will converge EXACTLY to the short-term rate at the end of the high-growth period ??
Was thinking about the math, and if you cut the difference in the Long-term and short-term growth rate in half each year, then will you ever actually get exactly to the short-term rate, or just infintesimally close ??? Perhaps this is why it says the growth CONVERGES…
Any math folks out there to verify?
I understand the model and what it is attempting to do. I guess i’m simply inquiring on the exactness of the math. Taking the half-life of something means it will never equal zero (the short-term growth rate in this case), but will eventually become infinitesimally close.
Just want to make sure this is right, anyone??
Not a “math guy” and I haven’t looked at it in a while, but I was under the impression that it provides an approximation that approaches the exact value without the tedious math-intensive process.
better yet, how do you duplicate the H-model in DCF form? I know the h-model is an approximation, but how are the growth rates determined…say you start at 10% and end at 3% after 5 years.
why don’T you just read the paper?
2 Fuller, R.J. and C. Hsia, 1984, A Simplified Common Stock Valuation Model, Financial Analysts Journal,
v40, 49-56
you guys have way too much time …