Gordon Growth Model

  • [b] Calculate and explain the meaning of the value of a common stock using the dividend discount model (DDM) for single or multiple holding periods.
  • [c] Compute the worth of common stock utilizing the Gordon growth formula and clarify the presumptions supporting the model.
  • [f] Compute and explain the implied growth rate of dividends utilizing the Gordon growth model and the present market value of the stock.
  • [g] Calculate and interpret PVGO and the component of P/E related to PVGO.
  • [h] Calculate and explain the meaning of forward and backward P/E ratios based on the Gordon growth model.
  • [d] Compute the price of a noncallable perpetual preferred stock with a fixed interest rate.
  • [e] Explain the benefits and drawbacks of using the Gordon growth model and provide reasons for its choice in valuing a company’s common stock.

Why is the language of the Learning Outcome Statements (LOS) different from the curriculum?
The LOS are protected under the CFA Institute's copyright, and we don't have permission to duplicate them verbatim. Therefore, we've rephrased the LOS and included alphabetical labels (a, b, c, …) to simplify cross-referencing with the original LOS in the curriculum when needed.

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