Explain the difference between a perpetuity (zero growth model), constant growth model and a non-constant growth model in valuing stocks. Solution Zero growth model: In this model it is assumed that the dividends paid are constant and does not grow, so for ever the same dividend is paid. Current value of a stock is nothing but the present vaule of the expected dividends from the stock. As, the dividends remain same every year, the dividend amount is discounted with the required rate of return. The resultant is the value of stock with perpetual dividends. Constant growth model: In this model it is assumed that the growth of dividends year on year remains the same. This is also called dividend discount model, in this case value of the stock is calculated by using the formula D1/(Ke - g).Where D1 is the expected dividend to be paid current year and Ke is the required rate of return and g is the growth rate. Non constant growth model: In a non constant growth model, where neither dividends nor growth of dividends are uniform, the expected dividends are discounted with the required rate of return to arrive at the current value of the stock..