 in this section i am going to explain the concept of the generalized dividend valuation model previously we discussed the one period valuation model to simplify this particular concept we assumed that the stock in which you are going to invest you are going to sell it back to the market after 1 year or 1 time period but in real life it does not happen so there can be a possibility that an investor buys a stock an investor invests in a stock keeps it for a certain number of years and then sells it and for the number of years or the number of periods he is going to keep it with him till that time period he will keep getting dividends and he has to decide what the value of this is and in this kind of complicated situation how will we take out its present value by considering all the possible cash flows that can be earned by investing in that particular stock to take it out we use the concept of the generalized dividend valuation model so what we basically need for this particular model or using this model to take out the present value for that we need a lot of things and that can be illustrated by looking at this particular formula which you can see on the screen right now so we need dividends that you are going to get every year the second one is the expected profit for every year or every time period you have assumed that with this particular investment you are going to get an on average expected rate of return and the third thing that you should know is to use the generalized dividend valuation model to calculate the present value that is the future selling price which is the end of the period for example after 5 years if you have to sell this particular stock or after 10 years or after 2 years or after 1 year what is the selling price of this particular stock you should know about that so what we will do is we will take into account the dividends for each time period as you can see suppose we assume that an investor has invested in a stock for the end time period and in that end time period let's say that is 5 years so in the first year we will get the dividend in the second year we will get the dividend so on in the up to 5th year we will get the dividend and in that we will add the end time period which is the future selling price but on all these factors we have to apply a discount factor because we want to get the present value P0 because right now what is the value of the cash flows in the future and for that one thing you have to keep in mind that the dividend of the first time period when we divide it with the discount factor then the raise to the power 1 will go so in the second time period we have to divide it with the 1 plus K is the expected rate of return on this investment so you have to take the raise to the power 2 and divide the dividend from this factor and similarly if it is for 5 years then the dividend of the fifth year 1 plus K raise to the power 5 will be divided and similarly if after 5 years you are going to sell your stock then you will put the end time period in the power of the denominator so the present value of that particular stock which you are intending to keep for the next 5 years you can use this particular formula sometimes we see that people invest in a certain common stock for a large number of years or for a very long span in that case the selling price of their future that is if they sell their stock then they withhold the stock and after 50 years or after 60 years or after 45 years they are going to sell it so after such a long period the price of the future selling price that doesn't have much impact on their present value because we saw that whatever your factor is we will discount it and get the present value so if suppose we are going to divide the value by the expected rate of return plus 1 raise to the power of 50 or 45 then it becomes 0.000 and becomes a very small value and the present value of such a small value of a common stock doesn't have much impact so if we are talking about a situation in which common stock will be sold after a long time period or the selling point is far far away from the current time period so in that on the selling point whatever your value is if you don't know then you don't consider it why I explained that its value becomes very small 0.000 and becomes because its divisor and denominator its power will grow when we have to account for a longer time period so in that case it is not necessary that you should have the value of P1 for short term time period for short term investment if you have to consider then for present value you will need P1 on the selling point on the time period when you are going to sell it its value will be an important role play on your present value but if it is very far away then its effect becomes very small if you don't know or consider it then your present value will not have a significant effect so in that case what is done is we take into account only the dividends and we calculate their present value by putting discount factor and we estimate our common stock or any investment in any stock its value in the current time period context current value of price in current price or in the terms of money its value should be and for that formula without considering if the selling point is far far away then we don't need the information regarding the price the selling price of that particular stock in that case we will be taking into account only the sum of the discounted dividends and that will give you present value of all the possible cash flows which you are expecting by investing in a certain stock for a for a number of period of times