corpmetrics (version 1.0)

ddm: 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)

Value

A data.frame presenting the model employed and the stock's value based on discounted dividents.

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).

Author

Pavlos Pantatosakis.

R implementation and documentation: Pavlos Pantatosakis .

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.

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)