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Valuation of securities

RRichard8y ago
Dear Sir I refer to my revision of your chapter 15 and also would like to refer you to BPP revision kit F9 Q225 regarding the market value of Cant Co. using the formula P0 = D0 (1+g)/(re-g) or alternatively as in the study guide P0 = D1/(re-g), I must ask you explain in your examples how that if the Dividend has JUST BEEN PAID, it is not a D1. Again we seem to be on one of those F9 timing exam busters Regards Richard Scully
RRichard8y ago#1
i wonder if the examiner didn't get it wrong because 6,28 is an answer offered but they are taking out the D0(1+g) part, leaving out the growth. This is going to haunt me until I find out.
John MoffatJohn MoffatTutor8y ago#2
Do is the dividend at the time 0 - the dividend that has just been paid. D1 is the dividend in 1 years time. If dividends are growing at the rate of g per annum, then D1 = Do (1+g). So depending on the way the information is given in the question, the top of the formula is either D0(1+g) or D1. They are both the same thing.
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