The Constant Growth Model, or Gordon Model, Is Formulated as Follows

question 3

Multiple Choice

The constant growth model, or Gordon model, is formulated as follows: $$p _ { 0 } = \frac { D _ { 0 } ( 1 + g ) } { k - g }$$ The model can be recast to focus on the expected return implied by the constant growth assumption, as follows:

• A) g = [P₀(k-g)/D₀] - 1.
• B) D1 = P₀(k - g).
• C) k_e = D₁/(P₀ - g).
• D) k_e = [D₀(1+g)/P₀]+ g.

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