What model calculates intrinsic stock value by discounting expected infinite future dividends growing at a constant rate?
ACapital Asset Pricing Model
BResidual Income Model
CBlack-Scholes Model
DGordon Growth Model (Constant Dividend Growth)
Explanation
* Gordon Growth Model formula: P0 = D1 / (r – g), where D1 = D0 * (1 + g).
* Requires that required rate of return (r) strictly exceeds dividend growth rate (g).
* Ideal for mature companies paying stable, predictable dividends.
Exam Relevance
- Topic: Corporate Finance
- Subtopic: Equity Valuation
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