What is the fundamental formula of the Gordon growth model?

Question

Quizplus · Accepted Answer

The correct formula for the Gordon growth model is kE = (d1/P0) + g, where kE is the required rate of return, d1 is the dividend for the next period, P0 is the current price, and g is the expected growth rate of dividends. None of the options match this formula exactly, but option C is the closest with kE = d1 + g, as it assumes the investor is able to accurately predict the future dividend payments and growth rate. Options A and D are incorrect because they use P1 instead of P0, which represents the future price instead of the current price. Option B is incorrect because it only includes the dividend for the next period and does not account for future growth.

What Is the Fundamental Formula of the Gordon Growth Model