CFA CFA Level 2 Need some equity help on Reading 33

# Need some equity help on Reading 33

• Author
Posts
• 0

A few things for anyone looking for some karma.  ðŸ™‚

1.)  How to calculate and interpret the implied growth rate of dividends using the Gordon growth model.

I’m racking my brain through the readings here.  Since V = (D1)/(r-g), then would not this merely be as simple as g = ((-D1)/V) + r

Or am I missing something?

2.)  I’m lost on terminal value.  Can I get the 2 or 3 sentence rundown here?  I get enough to be dangerous, so assume I know nothing.

• onr23
Participant
• CFA Level 2
4

Havent really dived into the material yet but what i remember from level 1 is that the growth rate is simply (1- dividend ratio) x ROE.

• vmartinez
Participant
• CFA Level 2
4

Hi, in the test you will have 3 options as answers. Instead of going through all the algebra to get g plug each g (each answer) and choose the one that is equal to V

• Zayd
Participant
• CFA Level 1
2

Haven’t started studying yet. Based on algebra, it does look right. for #2 not sure what you are asking, what exactly are you lost on?

• mattyc
Participant
• CFA Charterholder
1

On terminal value, extend the final payment by the short term growth rate and then divide by (r-g).  So if D0 grows by 5% for 3 years to find terminal value take D3 * 1.05, then divide by r-g.  And in this case g=long term growth rate.  Once you get that number add it to D3 and discount back to PV.

• salilmathur1690
Participant
• CFA Level 2
1

If you want, I can share Arif Irfanullah’s video of that reading with you. His videos really helped me clear several conceptual doubts.
Email me at salilmathur1690@gmail.com if you are interested.