GORDON GROWTH MODEL

Model for computing the intrinsic value of a stock, according to a future series of dividends growing at a constant rate. Granted a dividend per share payable within a year, it presumes the dividend grows at a constant rate in perpetuity. Calculated as:

Stock Value = (P) = D / k - G

Where:

D = Expected annual dividend per share

k = Required or discount rate of return for equity investor

G = Dividend growth rate (assumed to be constant)

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