Present Value with Constant Growth Rate
Present value with constant growth rate is often applied to find present value or current price of ordinary share (common stock).
- C0 : base amount at the beginning of period 1 (Period 0) for constant growth rate
- g: constant growth rate
Mr. BB want to invest stocks from NNM Company. Suppose that the dividend growth rate is 10 percent, the discount rate is 8 percent, there are 20 years of dividends to be paid, and the current dividend is $10. what is the value of the stock based on the constant growth model?
Co = $10 , g=10% ,r=8% and T=20 year, so
PV = $243.86
Thus, the price should be $243.86