Dividend growth rate - g

[FrankCFA]

If the question only provides the country’s real GDP is 2% and inflation is -2%. Should we assume the dividend growth rate is 2% or 0%?
Actually I’m thinking if I should put g=2% or 0% in GGM D0(1+g)/(r-g)…

 

[Cric12]

Interesting question. I’d think it should be zero growth rate. But I am keen to know what others think.

 

[sachin_patel]

GGM is in nominal terms.
in nominal terms GDP growth rate is 0%
meaning g =0
meaning Nominal Dividend is constant. (perpetuity)
formula for equity price becomes D/r (which makes sense to me)

 

[FrankCFA]

I used to think we should use nominal term….
BUT
Kapaln B2, page 124
“The preference is to use real, before inflation, rather than nominal in GGM….”
So i start to feel confused.

 

[zulu007]

Me too - always worked on the nominal basis.