Question

Assess the three different models used to value stocks based on different dividend patterns. List the different models and provide an example of each.

Answer 1

The different models used to value stocks based on different dividend patterns are:
1. Single period
2. Multi-period
3. Infinite period.

IVo = intrinsic value.
Dn = dividend at the nth year.
P1 = price of the stock at year 1.
Re= required a rate of return.
EPS = earnings per share
g = growth rate.

For example, I have taken:

D = dividend =$1
P1 = price of stock at year 1 =$10
Re= required rate of return =10%
EPS = earnings per share = $5
g = growth rate =5%

Models are Infinite peutod Single perlod Multiperiod No= Dit Pi It Re = 10 100 = $6.14 I Constant No growth No - EPS - Re 100= 5=50 Growth No = DI Re-g No= Multigrowth Similae to Multo period with growth abbeende.in 10% 10% - 5%= 20 dindend.