BUS 429 Study Guide - Midterm Guide: Wells Fargo, Weighted Arithmetic Mean, Retained Earnings
20 Jul 2020
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Gordon dividend model in honor of m. j. gordon,who first stated its application to share valuation (1959). We are assuming that dividends grow at a constant rate forever. Using the gordon model to compute the cost of equity re. We are asking the question - how much did dividends grow per year in order to go from 0. 2533 at the end of 1998 to 0. 40 at the end of 2002. There are five dividend levels, but four changes. Therefore, there are four periods of growth, so n = 4 in the formula in b16. Required return on equity = risk-free rate + beta*(market risk premium) Sp500 return calculation =(b5/b4)-1 (sp500 price #2 - price #1) -1. Add sp500 - rf and apple - rf columns (if not there) Sp500 - rf = (=f5-h5) return - rf % H64 = last rf use last rf % for rf calc. re cost of equity = middle + top * bottom.
