meghanjackson

maratikus Wrote:
-------------------------------------------------------
> good explanation, disptra.
>
> another formula that is helpful is
>
> P/B = (ROE-g)/(r-g) = (ROE-r+r-g)/(r-g) = 1 +
> (ROE-r)/(r-g)
>
> P/B > 1 if ROE > r

Nice. This proves when there is dividend RI model and GGM model are same.

It seems the key assumption to make these 2 equal is g = b * ROE, everything else is by definition.

genuinecfa

yes, the key assumption is perpetual constant growth g = b*ROE