Given the sensitivity of stock valuation models to the discount rate k*, it follows that their operational usefulness is significantly dependent upon the accuracy of the estimate of k*. The purpose of this study is to illustrate the use of the geometric mean to estimate k*. The usual approach to...

The theoretical valuation model has been shown to be mathematically equivalent to a price-earnings approach to stock valuation. The theoretical model explicitly includes estimates of long-run dividend (or earnings) growth. Because the price-earnings ratio approach is equivalent, it also...