The sum of infinite geometric period terms with ratio w < 1 is equal to 1+w+w...

 

Transcribed Image Text:

The sum of infinite geometric period terms with ratio w< 1 is equal to 1+w+w² + ... = 1/(1-w). Let P+ = the price and D+ = the dividend of a share in period t, u the expected return of the share, which is also used as a discount factor, and g = the rate of change of dividends. Given that 2 3 P₁ + ² - (1 + 2) D₁ + (1 = a) * D₁ + (¹+2) ³D. D, D₁ +... .Using formula (1) j) calculate the share price Pt according to Gordon's model, and ii) explain under what conditions Gordon's model is applicable. The sum of infinite geometric period terms with ratio w< 1 is equal to 1+w+w² + ... = 1/(1-w). Let P+ = the price and D+ = the dividend of a share in period t, u the expected return of the share, which is also used as a discount factor, and g = the rate of change of dividends. Given that 2 3 P₁ + ² - (1 + 2) D₁ + (1 = a) * D₁ + (¹+2) ³D. D, D₁ +... .Using formula (1) j) calculate the share price Pt according to Gordon's model, and ii) explain under what conditions Gordon's model is applicable.

Answer rating: 100% (QA)

i ii Answer iwww 2 12 12 4 12 D ... View the full answer