Quick Definition

The Gordon Growth Model (GGM) is a method used to determine the intrinsic value of a stock based on a future series of dividends that grow at a constant rate.

Formula

Examples

• 1Calculating the value of a stock that pays a $2 dividend expected to grow at 5% annually when the required rate of return is 10%.
• 2Using GGM to compare the intrinsic values of two companies with different dividend growth rates to make investment decisions.
• 3Evaluating the impact of changes in expected growth rates on the stock valuation of a well-established company.

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