In the Gordon growth model, what does 'g' represent?

In the Gordon growth model, 'g' represents the growth rate of dividends, specifically, it reflects the constant rate at which a company's dividends are expected to grow indefinitely. The model assumes that dividends will increase at this steady rate over time, allowing investors to use this growth rate in the calculation of the present value of expected future dividends. The formula for the Gordon growth model is designed to find the intrinsic value of a stock by discounting future dividend payments back to their present value, using the growth rate 'g' alongside the required rate of return. This makes understanding 'g' essential for estimating a stock's value based on its projected dividend growth.

The other options, while related to various aspects of financial analysis, do not accurately represent 'g' within the context of the Gordon growth model. Market risk pertains to the overall risk associated with investing in the market rather than a specific company's dividend policies. Dividends paid relate to the actual cash distribution to shareholders and do not incorporate the growth expectation. Return on equity is a measure of a company's profitability relative to shareholders' equity and is not directly part of the Gordon growth model framework.