Future stock value is equal to P₀ = D₁/(K_e - g)assuming a constant growth in dividends.
This formula develops CURRENT stock value, not future.

Question

Future stock value is equal to P₀ = D₁/(K_e - g)assuming a constant growth in dividends. This formula develops CURRENT stock value, not future.

Quizplus · Accepted Answer

The formula given is actually for determining the future stock value, not the current stock value. The formula takes into account the expected future dividends, the discount rate, and the constant growth rate. To get the current stock value, we would need to discount the future stock value back to the present using a suitable discount rate.

Future Stock Value Is Equal to P0 = D1/(Ke -

Future Stock Value Is Equal to P₀ = D₁/(K_e -