Residual Income

gazhoo January 23, 2013, 1:34pm #1

How is the math done here:

P0/B0 =( ROE - g)/ (r - g) from this you erive:

P0/B0 = 1 + (ROE - r)/(r - g)

pokhim January 23, 2013, 1:49pm #2

Damn…my maths is bad!

elcoelhon January 23, 2013, 2:10pm #3

P0/B0 = 1 + (ROE - r)/(r - g)

P0/B0 = (r - g)/(r - g) + (ROE - r)/(r - g)

P0/B0 =( ROE - g)/ (r - g)

Aether January 23, 2013, 3:08pm #4

Say what?

P0/B0

= (ROE - g) / (r - g)

= (ROE - g + r - r) / (r - g)

= [(ROE - r) + (r - g)] / (r - g)

= (ROE - r) / (r - g) + (r - g) / (r - g)

= (ROE - r) / (r - g) + 1