Question

To estimate the value of a nonconstant growth stock, we can estimate the value of each dividend during the period of nonconstant growth, find the PVs of these dividends, find the value of the stock at the horizon date, find the PV of the horizon value, and then sum these PVs to find the value of the stock today. True or false

Answer 1

Answer:

The correct answer is True.

Explanation:

The Gordon growth model is a method of valuing a company's share price, using constant growth and discounting the value of future dividends today. Gordon Growth is often known by its English name.

It is a dividend discount model that assumes that the growths that the company will experience are constant. It is based on the theory that the price of a share should be equal to the price of the dividends that the company is going to pay, discounted to its net present value.

If the share price in the market is less than the result obtained by the discounted dividend model, the share is undervalued and therefore, it is recommended to buy. If, on the other hand, the market price is higher than that of the model, it is understood that the share price is too high.