Howd

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

yuoska

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.

Valores

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

bpdulog

Heh Bro
This will surely help

Po = D1/r-g
Since we are calculating BV which comes from E1 = Bo x ROE (remember B here is the BVPS not ret rate)

If we divide both sides by Bo

Po/Bo = (D1/Bo)/r-g
from the above formula-
= ((D1 x ROE)/E1)/r-g

Notice that E1 is there, therefore we have not used ( x 1+g). If Eo had been in the formula, we would have added a term ( x 1+ g) like what we do in Po/So ratio

Now, D1/E1 is the payout ratio or 1-b
= ((1-b) x ROE )/ r-g

= (ROE- (b x ROE))/ r-g

= (ROE-g)/r-g

Cheers !