Share Prices in the Constant Growth Dividend Discount Model

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The constant growth dividend discount model assumes that a company will exist forever after a given point in time and that dividends will be increasing by a certain factor. With a given discounting factor, the discounted sum of future dividends constitutes today's share price. This Demonstration lets you test different scenarios and the effect of different settings of input variables on today's share price.

Contributed by: Thomas Lindner (January 2012)
Open content licensed under CC BY-NC-SA



Today's share price is computed from the input variables by taking with BVPS the book value of equity per share, which equals 5 in this Demonstration.

This model assumes the validity of the CAPM as well as a steady growth rate of dividends in the future with stable cost of equity.

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