Dividend growth model and Dodd-Frank: Difference between pages

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''US''


The Dividend growth model links the value of a firm’s equity and its market cost of equity, by modelling the expected future dividends receivable by the shareholders as a constantly growing perpetuity.
Abbreviation for the Dodd-Frank Act.


Its most common uses are:
In full, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.


(1) Estimating the market <u>cost of equity</u> from the current share price; and


(2) Estimating the fair <u>value</u> of equity from a given or assumed cost of equity.
The main aims of Dodd-Frank are to:


# Promote the financial stability of the United States by improving accountability and transparency in the financial system;
# End "too big to fail";
# Protect US taxpayers by ending bailouts; and
# Protect consumers from abusive financial services practices.


''Expressed as a formula:''


Ke = D<sub>1</sub> / P<sub>0</sub> + g
'''Reference:'''


''OR (rearranging the formula)''
(Sample citation: Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 929-Z, 124 Stat. 1376, 1871 (2010) (codified at 15 U.S.C. § 78o) [Bluebook R. 12.4].)


P<sub>0</sub> = D<sub>1</sub> / ( Ke - g )


<span style="color:#4B0082">'''''Dodd-Frank replacement unveiled'''''</span>


''Where:''
:In an ambitious plan to undo the US Dodd-Frank financial reform law, the head of the US House of Representatives banking panel has released a second draft of a replacement act.


P<sub>0</sub> = ex-dividend equity value today.
:... Republicans including President Trump believe Dodd-Frank, which has not been fully enacted, is unduly burdensome on banks and businesses, and restricts lending.


D<sub>1</sub> = expected future dividend at Time 1 period later.
:''The Treasurer magazine, May 2017, p8''


Ke = cost of equity per period.


g = constant periodic rate of growth in dividend from Time 1 to infinity.
== See also ==
* [[Financial Services Committee]]
* [[Financial Stability Oversight Council]]
* [[Independent Commission on Banking]]
* [[EMIR]]
* [[Living will]]
* [[MCT]]
* [[Swap execution facility]]
* [[Volcker Rule]]
* [[FATCA]]
* [[MiFID]]
* [[Know-your-customer]]
*[[Ring fence]]
*[[Too Big To Fail]]
*[[Vickers Report]]
* [[Developments in corporate and market regulation: implications for the treasurer]]




This is an application of the general formula for calculating the present value of a growing perpetuity.
<span style="color:#4B0082">'''Example 1'''</span>
Calculating the market <u>value</u> of equity.
Where:
D<sub>1</sub> = expected dividend at future Time 1 = $10m.
Ke = cost of equity per period = 10%.
g = constant periodic rate of growth in dividend from Time 1 to infinity = 2%.
P<sub>0</sub> = D<sub>1</sub> / ( Ke - g )
= 10 / ( 0.10 - 0.02 )
= 10 / 0.08
= $125m.
<span style="color:#4B0082">'''Example 2'''</span>
Or alternatively calculating the current market <u>cost of equity</u> using the rearranged formula:
Ke = D<sub>1</sub> / P<sub>0</sub> + g
Where:
D<sub>1</sub> = expected future dividend at Time 1 = $10m.
P<sub>0</sub> = current market value of equity per period = $125m.
g = constant periodic rate of growth in dividend from Time 1 to infinity = 2%.
Ke = 10 / 125 + 2%
= 10%.
Also known as the Dividend discount model, the Dividend valuation model or the Gordon growth model.
== See also ==
* [[CertFMM]]
* [[Cost of equity]]
* [[Corporate finance]]
* [[Perpetuity]]


===Other links===


===Other resources===
[http://uk.practicallaw.com/3-502-8950 Summary of the Dodd-Frank Act: Swaps and Derivatives, Practical Law]
[[Media:2013_10_Oct_-_The_real_deal.pdf| The real deal, The Treasurer student article]]


[[Category:Corporate_finance]]
[[Category:Compliance_and_audit]]

Revision as of 13:05, 17 May 2017

US

Abbreviation for the Dodd-Frank Act.

In full, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.


The main aims of Dodd-Frank are to:

  1. Promote the financial stability of the United States by improving accountability and transparency in the financial system;
  2. End "too big to fail";
  3. Protect US taxpayers by ending bailouts; and
  4. Protect consumers from abusive financial services practices.


Reference:

(Sample citation: Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 929-Z, 124 Stat. 1376, 1871 (2010) (codified at 15 U.S.C. § 78o) [Bluebook R. 12.4].)


Dodd-Frank replacement unveiled

In an ambitious plan to undo the US Dodd-Frank financial reform law, the head of the US House of Representatives banking panel has released a second draft of a replacement act.
... Republicans including President Trump believe Dodd-Frank, which has not been fully enacted, is unduly burdensome on banks and businesses, and restricts lending.
The Treasurer magazine, May 2017, p8


See also


Other links

Summary of the Dodd-Frank Act: Swaps and Derivatives, Practical Law

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