Use of the dividend growth, capm and apt. How accurate are these three models and how realistic are the assumptions of the three models. Which is the best one to estimate the discount rate for Target Corp.
Dividend growth model relates stock price, dividend, discount rate and growth rate. The model states that price = dividend/(discount rate - growth rate). This one is very easy to use and fairly accurate in the long run (the model calculates intrinsic value in the long run, it says nothing about how stock changes in the short run).
CAPM determines a theoretically appropriate required rate of return of an asset, given the market return and ...