31 Aug Money and Capital Markets – Gordon Growth Model
Stock prices plummeted after the terrorist attacks on 9/11. Use the Gordon growth model to explain why.
Stock prices plummeted after 9/11 because risks increased, raising k, and because expectations of corporate profits dropped, decreasing g. So the numerator of the Gordon growth model decreased and the denominator increased, both of which caused P to decrease.
Textbook link:
https://saylordotorg.github.io/text_money-and-banking-v2.0/s10-rational-expectations-efficien.html
Gordon Growth Model – Defenition & example
https://www.investopedia.com/terms/g/gordongrowthmodel.asp
