ddm {corpmetrics} | R Documentation |
Dividend Discount Models (DDM)
Description
Calculate the value of a common stock from discounted dividends, by employing (1) Zero Growth Model, (2) Gordon's Model, (3) Differential Growth Model.
Usage
ddm(DIV,RETURN,G1,G2,PER)
Arguments
DIV |
Dividend at period 0 (Numeric variable). |
RETURN |
Required return of the investor (Numeric variable). |
G1 |
Expected growth rate (Numeric variable) - Optional (Essential for Gordon's model & the differential growth model). |
G2 |
Expected growth rate after the period of change (Numeric variable) - Optional (Essential for the differential growth model). |
PER |
Period at which the growth rate changes (Numeric variable) - Optional (Essential for the differential growth model). |
Details
For the Zero Growth Model, fill in DIV and RETURN; for Gordon's Model, include DIV, RETURN, and G1; and for the Differential Growth Model, provide DIV, RETURN, G1, G2, and PER.
Value
A data.frame presenting the model employed and the stock's value based on discounted dividents.
Author(s)
Pavlos Pantatosakis.
R implementation and documentation: Pavlos Pantatosakis pantatosakisp@yahoo.com.
References
Jordan, B. D., Ross, S. A., and Westerfield, R. W. (2010). Fundamentals of corporate finance. McGraw Hill. p. 234-240 - ISBN: 9780073382395
Examples
##
# Example usage
#Company pays a dividend of 3 currency units per share
#Investors require a return of 8%
example <- ddm(
DIV = 3, # Dividend Amount in currency units
RETURN = 0.08 # Required Return of the investor
)
print(example)
#Company pays a dividend of 0.8 currency units per share
#Investors require a return of 10%
#The dividend is expected to grow at a constant rate of 4%
example2 <- ddm(
DIV = 0.8, # Dividend Amount in currency units
RETURN = 0.10, # Required Return of the investor
G1 = 0.04 # Growth rate
)
print(example2)
#Company pays a dividend of 2 currency units per share
#Investors expect a return of 12%
#The dividend is projected to grow at 8% for the first 3 years
#Then at 4%
example3 <- ddm(
DIV = 2, # Dividend Amount in currency units
RETURN = 0.12, # Required Return of the investor
G1 = 0.08, # Growth rate
G2 = 0.04, # Growth rate after PER
PER = 3 # Growth rate change happens in Period 3
)
print(example3)