Estimating a fair value of a market index with the dividend discount model would entail estimating the capitalization rate, which is:

Question

Quizplus · Accepted Answer

The capitalization rate in the context of the dividend discount model is the difference between the required rate of return and the growth rate. This is because the model estimates the present value of future dividends, which are affected by both the expected growth in dividends and the required return by investors.

Estimating a Fair Value of a Market Index with the Dividend