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Using the Gordon dividend growth model, explain why stock prices tend to rise when the central...

Using the Gordon dividend growth model, explain why stock prices tend to rise when the central bank announces an unexpected cut in the official interest rates.

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The gordon dividend model is used to determine the intrinsic value of a stock based on a future series of dividend that grow at constant rate..This model assume that company will exists forever and pay dividends per share that increase at constant rate.This model take infinite series of dividend per share anf discounts them back into the present using the required rate of return.This model calculate fair vair of stock irrespective of prevailing market conditions and takes into consideration the dividend pay out factors and market expected returns..this model calculte fair value if stock by assuming that dividend will grow at stable rate.

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