The Gordon Growth Model, also known as the dividend discount model (DDM), is a method for calculating the intrinsic value of a stock, exclusive of current market conditions. The model equates this value to the present value of a stock's future dividend.
Value of stock = D1/ (k - g)
D1 = next year's expected annual dividend per share
k = the investor's discount rate or required rate of return, which can be estimated using the Pricing Model or the Dividend Growth Model (see Cost of Equity)
g = the expected dividend growth rate ( that this is assumed to be constant)
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