📈 Equity Investments

Gordon Growth Model & Dividend Discount Model (DDM) Formula

Gordon Growth Model formula explained. Dividend discount model for stock valuation — single-stage and multi-stage DDM with worked examples.

Key Concepts

Intrinsic Value

True worth based on fundamentals. Compare to market price: undervalued if V > P.

Dividend Discount Model (DDM)

V = Σ D<sub>t</sub>/(1+r)<sup>t</sup>. Value of stock = PV of all expected future dividends.

Study dashboard+4 more concepts

The complete set of concepts for this module lives in the study dashboard, alongside flashcards, quizzes, mind maps and progress tracking.

Open in Dashboard

Formulas

From this module

Gordon Growth Model

V0 = D1 / (r - g)

Where: D<sub>1</sub> = next year dividend, r = required return, g = constant growth

Multi-Stage DDM

V = Σ Dt/(1+r)t + Vn/(1+r)n

Where: V<sub>n</sub> = terminal value using Gordon model

Study dashboard+4 more formulas

The complete set of formulas for this module lives in the study dashboard, alongside flashcards, quizzes, mind maps and progress tracking.

Open in Dashboard

Master Formula Sheet -- Equity Investments

DDM (Gordon Growth)

V₀ = D₁ / (r - g)

Constant growth dividend model

Required Return (DDM)

r = (D₁/P₀) + g

Dividend yield + growth rate

Study dashboard+7 more formulas

The complete set of formulas for Equity Investments lives in the study dashboard, alongside flashcards, quizzes, mind maps and progress tracking.

Open in Dashboard

Decision Frameworks

When to use DDM vs Multiples?

Use when:

  • DDM: mature dividend-paying companies, when dividends are predictable
  • Multiples: quick comparison, when detailed forecasting is impractical
  • EV/EBITDA: comparing firms with different leverage

Avoid when:

  • DDM for non-dividend-paying companies
  • P/E when earnings are negative or highly volatile

Test Your Understanding

D<sub>1</sub> = $3.00, r = 12%, g = 4%. Stock value per Gordon Growth Model:

Master this topic

Full cheat sheet, flashcards, mind map, and quiz for Equity Valuation: Concepts and Basic Tools.

Master Formula Sheet

All 80+ CFA Level 1 formulas in one searchable reference page.

Ready to study Gordon Growth Model & Dividend Discount Model (DDM) Formula?

Jump into the full module with cheat sheets, flashcards, mind maps, and practice questions.

Start Studying

No signup required. Create an account anytime to save progress.