KIC000046 - - n Intrinsic Value of a Stock The intrin U:...

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n Intrinsic Value of a Stock The intrin U: value of a stock is the present value of all of the cash payments to the stock's investor discounted by the appropriate risk-adjusted rate of return. The market-consensus estimate of the appropriate discount ratl:. ..for a ~k's ~\ ~o~s is called the market ( '''.1'\ rl-iI\ rate. Holding Stock for One Period Suppose you buy a share of IBM today, collect the dividend paid at the end of one period and then sell the share. Suppose you know the required rate of return r. What would you pay for the sbare? p. :3. .+.1. . o t+r I+r where Po : lhe current price q{ a sbare 1) -Ihe price of a sbare in the next period D I = expeaed dividend per shan nexl period. and r =Ihe expecled rate of return on lhe shan. Example You bought Agro, Inc. stock for $23.875 last quarter. Today you collected a dividend of SO.50 and the stock closed at $24.50. What is the stock's quarterly dividend yield? Quarterly
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KIC000046 - - n Intrinsic Value of a Stock The intrin U:...

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