In the Gordon Growth Model, D1 is the next period dividend. Which option correctly identifies D1's role?

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Multiple Choice

In the Gordon Growth Model, D1 is the next period dividend. Which option correctly identifies D1's role?

D1 is the dividend expected at the end of the next period, the first cash flow in the growing perpetuity used to value the stock. In the Gordon Growth Model, the price today is P0 = D1 / (r − g), so D1 represents the next period dividend investors expect to receive, not the current dividend. The current dividend is D0, and the model sums an infinite sequence of future dividends that grow by a constant rate g (D2 = D1 × (1+g), and so on). The dividend yield is a ratio (D1/P0), not what D1 itself represents. If you know D0 and g, you can get D1 = D0 × (1+g).

D1 is the dividend expected at the end of the next period, the first cash flow in the growing perpetuity used to value the stock. In the Gordon Growth Model, the price today is P0 = D1 / (r − g), so D1 represents the next period dividend investors expect to receive, not the current dividend. The current dividend is D0, and the model sums an infinite sequence of future dividends that grow by a constant rate g (D2 = D1 × (1+g), and so on). The dividend yield is a ratio (D1/P0), not what D1 itself represents. If you know D0 and g, you can get D1 = D0 × (1+g).

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