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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › CAPM and DGM
Hello,
Under what circumstances can these two models result into similar answers?
In theory they should always give the same answer.
CAPM gives the return that shareholders require.
The return they require determines the market value, and the dividend growth model simply works backwards from the market value.
In practice they are unlikely to give the same value because we do not have a perfect market and therefore the market value will not always be as it should be.
For that reason, CAPM is regarded as giving a more accurate result than the dividend growth model.