Series 79: Dividend Discount Model (DDM)

Taken from our FINRA Investment Banking Exam

Definition of the term Dividend Discount Model (DDM)...

a model for determining whether a stock is over- or undervalued. According to the DDM, when dividends are assumed to grow at a constant rate, the price of a stock can be estimated by dividing the annual dividend by the value of the required rate of return less the growth rate.

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