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9 Cards in this Set
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V = D0 (1 + g) / k - g
What does this formula mean? |
The dividend-growth valuation model.
Valuation as the present value of dividends and the growth of dividends. The stock's value is equal to the present dividend times the sum of 1 and the rate of the dividend growth divided by the required rate of return minus the rate of growth in the dividend. |
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V = D0 (1 + g) / k - g
What is "V"? |
The stock's value.
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V = D0 (1 + g) / k - g
What is "DO"? |
Dividends at the present time.
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V = D0 (1 + g) / k - g
What is "g"? |
The rate of growth in the dividend.
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V = D0 (1 + g) / k - g
What is "k"? |
The required rate of return.
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Dividend-Growth Valuation Model
(Stocks) <def> |
A valuation model that deals with dividends and their growth properly discounted back to the present.
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Notes: Value investing primarily focuses on what an asset is worth -- its intrinsic value. As with the valuation of any asset, the valuation of stock involves bringing future cash inflows (e.g., dividends) back to the present at the appropriate discount factor.
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Notes: For the individual investor, that discount factor is the required rate of return, which is the return the investor demands to justify purchasing the stock.
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Dividends
<definition> |
Bringing future cash inflows back to the present at the appropriate discount factor.
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Discount factor
<definition> |
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