Key points Regarding Differences in share price

In theory the market value of a share is determined by the shareholders expected future dividends and the rate of return that they require.

When we use the dividend valuation model we are making assumptions about their expectation of future dividend growth and about their required rate of return- in practice it is impossible to know either!!!

It also assumes that dividends are the only factor that affects the share price – in practice other factors are relevant (such as the net asset value of the company; the possibility of being taken over etc..)