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A Puzzle For Teaching The Constant Growth Stock Pricing Model

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  • Lynda S. Livingston

Abstract

The constant growth stock pricing model is an important component of introductory corporate finance courses, and an important step on the way to understanding the general two-stage model. In this paper, I present a relatively fun puzzle based on the relationships implied by the constant growth model. When solving this puzzle, students are forced to look beyond the apparent simplicity of the model, ensuring that they are ready to incorporate its concepts into more general situations. However, the most satisfying part of the exercise is the enthusiasm with which students approach the exercise, since, after all, it is a puzzle!

Suggested Citation

  • Lynda S. Livingston, 2007. "A Puzzle For Teaching The Constant Growth Stock Pricing Model," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 1(2), pages 97-107.
    • Handle: RePEc:ibf:gjbres:v:1:y:2007:i:2:p:97-107
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