Zero Growth Dividend Discount Model Calculator
The Zero Growth Dividend Discount Model (DDM) is a valuation method used to estimate the intrinsic value of a stock. It’s particularly useful when a company’s growth rate is expected to be zero. Understanding this model is crucial for investors as it helps in making informed decisions about stock purchases.
- Enter the current annual dividend per share.
- Enter the risk-free rate (usually the yield on government bonds).
- Click ‘Calculate’.
The formula for the Zero Growth DDM is: Dividend per share / (Risk-free rate). The calculator uses this formula to estimate the intrinsic value of the stock.
| Method | Formula | Assumptions |
|---|---|---|
| DDM | Dividend per share / (Risk-free rate) | Zero growth, perpetual dividend |
- Always consider the company’s fundamentals and industry trends when using this model.
- Be aware of the assumptions made in the model and their potential impact on the results.
What is the risk-free rate?
The risk-free rate is the theoretical return on an investment with no risk. It’s usually approximated using the yield on government bonds.
For more information, see the Investopedia guide on DDM and the Federal Reserve’s data on government bond yields.