Dividend Discount Models

The core idea

Zero growth, the perpetuity case

The Gordon growth model

Fit, misfit, and judgment

According to dividend discount models, what determines a stock's fair price?

A mature firm pays a constant annual dividend of 2 dollars per share, and investors require an 8 percent return. What is the dividend discount model price?

Next year's dividend is expected to be 2 dollars, dividends grow 3 percent annually forever, and the required return is 8 percent. What does the Gordon growth model give as the price?

Why does a small change in the growth rate or required return move the Gordon growth price so much?

For which kind of firm does the dividend discount model fit least well?

Why do analysts anchor a firm's long-run dividend growth at or below the economy's growth rate?

What is the last name of the economist whose constant-growth dividend discount model carries his name? Answer with one word.

For the Gordon growth model to produce a finite price, the required return must be greater than what other rate? Answer with one letter.

In the Gordon formula, the numerator is the dividend expected at which future date, this year or next? Answer with one word.

With zero growth, the dividend discount model reduces to which single-payment-stream valuation form from the TVM module? Answer with one word.