The Gordon model, also known as the Gordon Growth Model or the Dividend Discount Model for a growing perpetuity, is indeed a generalization of the perpetuity formula to account for growth in perpetuity. It is valid only when the growth rate (g) is less than the required rate of return (k), to ensure the present value of future cash flows converges to a finite number.

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The Gordon Model

Question 7

Multiple Choice

The Gordon model

A) is a generalization of the perpetuity formula to cover the case of a growing perpetuity.
B) is valid only when g is less than k.
C) is valid only when k is less than g.
D) is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid only when g is less than k.
E) is a generalization of the perpetuity formula to cover the case of a growing perpetuity and is valid only when k is less than g.

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