Management and Organizational Studies 2155A/B Study Guide - Midterm Guide: Proprietary Trading, George Akerlof, Underlying

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2155A/B
• Professor: Desmond McKeon

Document Summary

The stock market, the theory of rational expectation and the ef cient market. Po = [div 1 / (1+ke)] + [p1 / (1 + ke)] Div1= dividend paid at the end of year 1. P1= sale price of the stock at the end of the rst period. The generalization dividend valuation model is the one period valuation model extended to any number of periods. Po = [d1 / (1+ke)] + [d2 / (1+ke)] + + [dn / (1+ke)] + [pn / (1+ke)] Di= dividend paid at the end of year i. Many stocks don"t pay dividends and the assumption of the model assumes stocks do pay dividends; there is still value in these stocks because buyers of stocks expect that rms will pay dividends someday. The gordon growth model assumes constant dined growth. Po= do(1+g) / ke 9 = d1 / ke g. Do- most recent dividend payout g= expected constant growth rate in dividends.