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