i want these questions to be answered in a simple format
Briefly explain:
(1) Why in the equity valuation model, i.e., dividend discount model (DDM), it is dividends rather than earnings that are considered in the model?
(2) There are two income sources from investing in common stock, one is dividend, and another is capital gain. Why it is only dividend that is considered, while capital gain is not being considered, in the DDM model?
Essay
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What is the difference between the dividend discount model (DDM) and the constant-growth DDM model?
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Compare the constant-growth DDM and the discounted cash flow formula (i.e., E(r) = dividend yield + capital gains yield) and answer the following two questions:
(1) Are they related? in specific, can you derive one from another?
(2) What is the key difference between these two models?
Essay
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Why in general the two-stage or multi-stage constant-growth DDM model is more realistic than the single-stage DDM model?
