Finance School of management The discounted dividend model o The rate of return that investors expect, E(1), equals the market capitalization rate, k E(r1)= D1+B1 k 、D1+f D 1+k The price is the present value of the expected end-of-year dividend plus the expected ex-dividend price discounted at the required rate return jesT8 Finance School of Management The Discounted Dividend Model ❑ The rate of return that investors expect, E(r1 ), equals the market capitalization rate, k. 1 1 0 1 0 ( ) D P P E r k P + − = = k D P P + + = 1 1 1 0 The price is the present value of the expected end-of-year dividend plus the expected ex-dividend price discounted at the required rate return