Dividend Discount Models Use Three Basic Variables to Arrive at a Stock

question 50

Essay

Dividend discount models use three basic variables to arrive at a stock price. What are these variables, and how can an analyst arrive at values for these variables?

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Definitions:

Sell Bonds

The act of disposing of bonds in exchange for cash before they mature.

Company

An organization or entity engaged in commercial, industrial, or professional activities, either for-profit or nonprofit.

Fisher Effect

An economic theory proposing that the real interest rate is independent of monetary measures, particularly the nominal interest rate and expected inflation.

Nominal

Refers to the face value of a financial instrument or the expressed value of a currency without adjusting for inflation.