The constant growth model used for evaluating the price of a share of common stock may also be used to find the price of perpetual preferred stock or any other perpetuity.

Question

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The constant growth model, also known as the Gordon growth model, is used to find the price of any investment that pays a constant dividend or cash flow indefinitely, such as perpetual preferred stocks or perpetuities. Therefore, it can be used to find the price of perpetual preferred stock or any other perpetuity.

The Constant Growth Model Used for Evaluating the Price of a Share