My Math Forum  

Go Back   My Math Forum > High School Math Forum > Algebra

Algebra Pre-Algebra and Basic Algebra Math Forum


Reply
 
LinkBack Thread Tools Display Modes
April 20th, 2019, 11:18 PM   #1
ROI
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!
ROI is offline  
 
April 21st, 2019, 04:35 AM   #2
Math Team
 
skeeter's Avatar
 
Joined: Jul 2011
From: Texas

Posts: 2,923
Thanks: 1518

$fv = \dfrac{d(1+gr)}{dr-gr}$

$dr-gr = \dfrac{d(1+gr)}{fv}$

$dr = \dfrac{d(1+gr)}{fv} + gr$
skeeter is online now  
April 21st, 2019, 10:47 AM   #3
Math Team
 
Joined: Oct 2011
From: Ottawa Ontario, Canada

Posts: 14,412
Thanks: 1024

Quote:
Originally Posted by ROI View Post
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.
Denis is offline  
Reply

  My Math Forum > High School Math Forum > Algebra

Tags
discount, isolate, rate



Thread Tools
Display Modes


Similar Threads
Thread Thread Starter Forum Replies Last Post
Nominal Rate of Discount bigtee44 Probability and Statistics 3 October 3rd, 2015 09:28 PM
Discount Price symmetry Algebra 6 February 3rd, 2007 08:37 AM





Copyright © 2019 My Math Forum. All rights reserved.