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CFA Level 1
Equity Investments

Intrinsic Value Calculation Using DDM

Easy Equity Valuation Techniques Dividend Discount Models

Alice is analyzing a stock using the Dividend Discount Model (DDM). She expects the company to pay a dividend of $4.00 next year, and she believes that the dividends will grow at a constant rate of 5% indefinitely. If Alice requires a rate of return of 10% on her investment, what is the intrinsic value of the stock according to the Gordon Growth Model, a type of DDM?

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