Gordon Growth Model formula explained. Dividend discount model for stock valuation — single-stage and multi-stage DDM with worked examples.
True worth based on fundamentals. Compare to market price: undervalued if V > P.
V = Σ D<sub>t</sub>/(1+r)<sup>t</sup>. Value of stock = PV of all expected future dividends.
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Gordon Growth Model
Where: D<sub>1</sub> = next year dividend, r = required return, g = constant growth
Multi-Stage DDM
Where: V<sub>n</sub> = terminal value using Gordon model
Free covers one Quants module. Premium opens all 10 subjects and 59 modules of CFA Level 1.
DDM (Gordon Growth)
Constant growth dividend model
Required Return (DDM)
Dividend yield + growth rate
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Use when:
Avoid when:
D<sub>1</sub> = $3.00, r = 12%, g = 4%. Stock value per Gordon Growth Model:
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