Constant Growth Rate

A constant growth rate refers to a steady, predictable increase in a value over time. For example, if a company's earnings grow at a consistent rate annually, such as 5%, each year's earnings are expected to be 5% higher than the previous year's. This concept helps in financial forecasting and valuation by assuming that growth remains stable and gradual, allowing for easier planning and decision-making. It is commonly used in models to project future earnings, dividends, or investments, assuming that the rate of increase stays the same over a specified period.