Journal of Financial and Quantitative Analysis Vol. 7 No. 3 1972
Closed-Form Stock Price Models
Abstract
In a previous paper we reviewed the literature on normative stock price models. These models specified the present value of a share of common stock to be equal to the discounted value of dividends accruing to the holder. Using continuous discounting, the present value of a share is (1) where Dt is the dividend rate at time t and k is the cost of equity capital. Presumably k is a function of both the stockholders' time value of money and the perceived risk or uncertainty associated with the future dividend stream.
- DOI
- 10.2307/2329803
- Volume
- 7
- Issue
- 3
- Pages
- 1797
- Sources
- openalex crossref