Deck 2 – Time Value of Money (LM2)

Why does the constant-growth $DDM$ require $r>g$?

Otherwise the denominator is zero or negative, making value invalid.

How do you infer the constant dividend growth rate from price and required return?

$g=r-\frac{D_1}{P_0}$

How is the forward FX rate linked to spot FX and interest rates under no arbitrage?

$F=S\times \frac{1+r_{domestic}}{1+r_{foreign}}$

In the constant-growth $DDM$, how do you infer the implied growth rate?

$g=r-\frac{D_1}{P_0}$.