{"id":105051,"date":"2021-01-30T16:43:33","date_gmt":"2021-01-30T11:13:33","guid":{"rendered":"https:\/\/www.vskills.in\/certification\/tutorial\/?page_id=105051"},"modified":"2024-04-12T14:28:23","modified_gmt":"2024-04-12T08:58:23","slug":"constant-growth-model","status":"publish","type":"page","link":"https:\/\/www.vskills.in\/certification\/tutorial\/constant-growth-model\/","title":{"rendered":"Constant Growth Model"},"content":{"rendered":"\n<p>This model assumes that both the dividend amount and the stock\u2019s fair value will grow at a constant rate. This model assumes that the dividend paid by the company will grow at a constant percentage.<\/p>\n\n\n\n<p>Constant growth rate model also known as \u2018Gordon Growth Model\u2019 has been named after Professor Myron J. Gordon. This model works on the underlying assumption that the company will continue to pay the dividend amount as a fixed multiple of growth in the future, as it is paying now. It is an appropriate model to value companies who increase dividend by fixed rate every year.<\/p>\n\n\n\n<p>It is one of the most popular dividend discount models assumes that the dividend per share grows at a constant rate (g). The value of a share, under this assumption is<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/www.vskills.in\/lms\/wp-content\/uploads\/2016\/06\/Image-48-2.jpg\" alt=\"Image 48\" class=\"wp-image-40130\"\/><\/figure><\/div>\n\n\n\n<p>Applying the formula for the sum of a geometric progression, the above expression simplifies to<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/www.vskills.in\/lms\/wp-content\/uploads\/2016\/06\/Image-49-2.jpg\" alt=\"Image 49\" class=\"wp-image-40131\"\/><\/figure><\/div>\n\n\n\n<p><strong>Illustration:<\/strong><\/p>\n\n\n\n<p>Arvind Engg. Ltd. Is expected to grow at the rate of 6 %per annum. The dividend expected on Arvind\u2019s equity share a year hence is Rs.2.00. What price will you put on it if you\u2019re required rate of return for this share is 14 % ?<\/p>\n\n\n\n<p>The price of Arvind\u2019s equity share would be<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/www.vskills.in\/lms\/wp-content\/uploads\/2016\/06\/Image-50-2.jpg\" alt=\"Image 50\" class=\"wp-image-40132\"\/><\/figure><\/div>\n","protected":false},"excerpt":{"rendered":"<p>This model assumes that both the dividend amount and the stock\u2019s fair value will grow at a constant rate. This model assumes that the dividend paid by the company will grow at a constant percentage. Constant growth rate model also known as \u2018Gordon Growth Model\u2019 has been named after Professor Myron J. Gordon. This model&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-105051","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Constant Growth Model - Tutorial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/tutorial\/constant-growth-model\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Constant Growth Model - Tutorial\" \/>\n<meta property=\"og:description\" content=\"This model assumes that both the dividend amount and the stock\u2019s fair value will grow at a constant rate. This model assumes that the dividend paid by the company will grow at a constant percentage. Constant growth rate model also known as \u2018Gordon Growth Model\u2019 has been named after Professor Myron J. Gordon. 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