Explore BrainMass
Share

Gordon model

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

Research an equation/formula that you use, rely on, or hear about in your everyday world (i.e., weather forecast, stock market predictions). Describe common uses of the formula or equation that you are exposed to. Are these always right? Why or why not?

© BrainMass Inc. brainmass.com October 25, 2018, 2:13 am ad1c9bdddf
https://brainmass.com/business/discounted-cash-flows-model/gordon-model-291472

Solution Preview

The response addresses the queries posted in 453 words with references.

//The Gordon model is the model that is used for making the predictions related to the stock market. Before starting a paper like this, it is important to throw light on the concept of this model and it also helps out in gaining the importance of the model as it is employed for the stock market predictions.//

The formula or the equation that is used at the time of the stock market predictions is

(D+ (1+g))/ k-g. The equation is useful at times when there is a need for predicting the nature of the stock market. The Gordon growth model is a variant of the discounted cash flow model, a method for valuing the stock or the business. The model is named after Myron J. Gordon, the person who was responsible for giving the formula (Gordon Model, 2008).

In this ...

Solution Summary

The response addresses the queries posted in 453 words with references.

$2.19
See Also This Related BrainMass Solution

Using the Gordon Model to Conduct a Stock Valuation

The question is below.
Gordon Model is:

PO= Do (1+g) =d1
ri-g ri-g

Here is the question:

Your local stockbroker is recommending that you purchase a stock with a current market price of $57. This stock paid dividends last year of $4.00 and forecasts a future growth rate in dividends and earnings of 10%. Your required rate of return on this stock is 18%. From a valuation standpoint you should (please display all work)

a. Not buy the stock; it is overvalued by $2.00
b. Not buy the stock; it is overvalued by $7.00
c. Buy the stock; it is undervalued by $2.00
d. Buy the stock; it is undervalued by $7.00
e. Buy the stock; its fairly valued.

View Full Posting Details