Gordon's Growth Model

A

The correct answer is A. Dividend discount model.

The Gordon's Growth Model, also known as the Dividend Discount Model, is a method used to value a company's stock price based on the theory that the current stock price is equal to the sum of all future dividends discounted back to their present value.

The model assumes that the company will pay a constant dividend for an indefinite period, and the growth rate of the dividend will be constant over time. The model is expressed mathematically as follows:

P = D / (r - g)

Where: P = current stock price D = current dividend per share r = required rate of return g = constant growth rate of the dividend

The required rate of return (r) is the minimum rate of return an investor expects to earn from an investment to compensate for the risk taken. The constant growth rate of the dividend (g) is the rate at which the dividend is expected to grow over time.

The Dividend Discount Model is one of the most commonly used valuation methods in the field of finance, especially for companies that pay dividends regularly. It is simple to use and provides a rough estimate of the company's intrinsic value. However, it does have some limitations, such as its reliance on assumptions of constant dividend growth and the required rate of return.

The other options, Binomial models finance, Capital asset pricing model, and Black scholes model finance, are not related to Gordon's Growth Model. Binomial models are used to value options and other financial instruments, while the Capital Asset Pricing Model (CAPM) is used to calculate the expected return of an asset based on its risk level. The Black-Scholes model is used to value options and other derivatives.