My Math Forum Isolate discount rate

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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: 2,923 Thanks: 1518 $fv = \dfrac{d(1+gr)}{dr-gr}$ $dr-gr = \dfrac{d(1+gr)}{fv}$ $dr = \dfrac{d(1+gr)}{fv} + gr$
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)

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.

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