lecture5-350

lecture5-350 - Stock and Its Valuation The application of...

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Financial management: lecture 5 Stock and Its Valuation The application of the present value concept
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Financial management: lecture 5 Today’s agenda Review what we have learned in the last lecture Stock and its valuation Some terminology about a stock Value a stock Simple dividend discount model Dividend growth model
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Financial management: lecture 5 What have we learned in the last lecture Bond? How to value a bond? Yield to maturity and spot rates? Term structure of interest rates and yield curve?
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Financial management: lecture 5 Some questions A bond that pays annual coupon is issued with a coupon rate of 4%, maturity of 30 years, and a yield to maturity of 7%, what will be the rate of return if you buy it now and hold it for one year and the yield to maturity in the next year will be 8%?
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Financial management: lecture 5 What is a stock? A (common) stock is a financial claim that has the following properties: A right to receive dividends after creditors have been paid A right to vote at the annual meeting A limited liability security Dividends are periodic cash flows paid to share holders. They are not guranted.
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Financial management: lecture 5 Primary Market - Place where the sale of new stock first occurs. Secondary market - market in which already issued securities are traded by investors. P/E ratio - Price per share divided by earnings per share. Dividend yield- Dividends per share divided by the stock price
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Financial management: lecture 5 Values of stocks Book Value of a stock- the value according to the balance sheet in the accounting. Market Value of a stock – the value according to the traded stock prices in the market.
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Financial management: lecture 5 Stock valuation When you want to invest in a stock, you are very interested in whether the stock is under- priced or over-priced. To find out, you need to value the stock Two simple approaches to price a stock Simple dividend discount model Dividend growth model We will apply these two approaches to real stocks, for example, IBM
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Financial management: lecture 5 Simple dividend discount model: valuing IBM We will first use the dividend discount model to value the International Business Machine. What does the company do?
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lecture5-350 - Stock and Its Valuation The application of...

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