Gordon growth model is the model used in calculating the intrinsic value of the stock where the future dividends of the stock are known. The dividends must grow at a constant rate. The first step is to identify the formula to use in the calculation (HAYES, 2019).
Po = Do (1+g) Where Do is the dividend that will be paid over the years.
(Ke – g) g is the growth of the dividend over the years
Ke is the rate of return that is required
Po is the current price of the stock
The second step is the implementation of the project by inserting the figure into the formula
Po = $3 (1+ 0.07)
(0.18 – 0.07)
= $3 (1.07)
HAYES, A. (2019). Gordon Growth Model. Retrieved from https://www.investopedia.com/terms/g/gordongrowthmodel.asp