CFA CFA Level 2 Need some equity help on Reading 33

Need some equity help on Reading 33

  • Author
    Posts
    • Up
      0
      ::

      A few things for anyone looking for some karma.  🙂

      1.)  How to calculate and interpret the implied growth rate of dividends using the Gordon growth model.

      I’m racking my brain through the readings here.  Since V = (D1)/(r-g), then would not this merely be as simple as g = ((-D1)/V) + r

      Or am I missing something?

      2.)  I’m lost on terminal value.  Can I get the 2 or 3 sentence rundown here?  I get enough to be dangerous, so assume I know nothing.

    • Avatar of onr23onr23
      Participant
        • CFA Level 2
        Up
        4
        ::

        Havent really dived into the material yet but what i remember from level 1 is that the growth rate is simply (1- dividend ratio) x ROE.

      • Avatar of vmartinezvmartinez
        Participant
          • CFA Level 2
          Up
          4
          ::

          Hi, in the test you will have 3 options as answers. Instead of going through all the algebra to get g plug each g (each answer) and choose the one that is equal to V

        • Avatar of ZaydZayd
          Participant
            • CFA Level 1
            Up
            2
            ::

            Haven’t started studying yet. Based on algebra, it does look right. for #2 not sure what you are asking, what exactly are you lost on?

          • Avatar of mattycmattyc
            Participant
              • CFA Charterholder
              Up
              1
              ::

              On terminal value, extend the final payment by the short term growth rate and then divide by (r-g).  So if D0 grows by 5% for 3 years to find terminal value take D3 * 1.05, then divide by r-g.  And in this case g=long term growth rate.  Once you get that number add it to D3 and discount back to PV.

            • Avatar of salilmathur1690salilmathur1690
              Participant
                • CFA Level 2
                Up
                1
                ::

                If you want, I can share Arif Irfanullah’s video of that reading with you. His videos really helped me clear several conceptual doubts.
                Email me at salilmathur1690@gmail.com if you are interested.

            Viewing 5 reply threads
            • You must be logged in to reply to this topic.