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 April 20th, 2019, 11:18 PM #1 Newbie   Joined: Apr 2019 From: Denmark Posts: 1 Thanks: 0 Isolate discount rate I use this dividend discount formula to calculate the fair value of dividend stocks: fv=(d*(1+gr))/(dr-gr) fv=fair value d=dividend gr=growth rate dr=discount rate But how do I isolate the discount rate (so I can insert the current stock price instead of the fair value and get an estimate of the expected return)? Thanks in advance! April 21st, 2019, 04:35 AM #2 Math Team   Joined: Jul 2011 From: Texas Posts: 3,002 Thanks: 1587 $fv = \dfrac{d(1+gr)}{dr-gr}$ $dr-gr = \dfrac{d(1+gr)}{fv}$ $dr = \dfrac{d(1+gr)}{fv} + gr$ April 21st, 2019, 10:47 AM   #3
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Quote:
 Originally Posted by ROI fv=(d*(1+gr))/(dr-gr) fv=fair value d=dividend gr=growth rate dr=discount rate How do I isolate the discount rate dr ?
Short cut suggestion:
Let u = d(1 + gr)

Then your equation becomes:
fv = u/(dr - gr)
Solve for dr:
fv(dr - gr) = u
dr - gr = u/fv
dr = u/fv + gr

That'll result same as Skeeter's. Tags discount, isolate, rate Thread Tools Show Printable Version Email this Page Display Modes Linear Mode Switch to Hybrid Mode Switch to Threaded Mode Similar Threads Thread Thread Starter Forum Replies Last Post bigtee44 Probability and Statistics 3 October 3rd, 2015 09:28 PM symmetry Algebra 6 February 3rd, 2007 08:37 AM

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