CH9 stock - Valuation of Financial Assets - Equity (Stock)...

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Unformatted text preview: Valuation of Financial Assets - Equity (Stock) • Common stock • Preferred stock – hybrid • similar to bonds with fixed dividend amounts • similar to common stock as dividends are not required and have no fixed maturity date • Always perpetual preferred, so use perpetuity formula 1 Stock Valuation Models • Terms: Expected Dividends – D0 – most recent dividend paid; last dividend paid; paid at t = 0 – D1 – dividend paid at t = 1 – Dn – dividend paid at t = n • We suggest that we never sell a stock, so all the cash flows are ALL future dividends, to infinity 2 Stock Valuation Models • Terms: Market Price 3 Pn = the price at which a stock sells in the market at t = n ay market tod in the sells stock a at which price the P = Stock Valuation Models • Terms: Intrinsic Value (Price we calculate) 4 both or value, book its price, market current s asset' the from different be may and facts the by justified is investor, an of mind the in that, asset an of value the P ˆ = Stock Valuation Models • Terms: Growth Rate 5 Can be + or - g = the expected rate of change in dividends per share Stock Valuation Models • Terms: Required Rate of Return 6 k = i = r s investment other on available returns and riskiness its given , acceptable consider rs stockholde that stock common a on return of rate minimum the k s = Stock Valuation Models...
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This note was uploaded on 03/18/2012 for the course FIN 301 taught by Professor Schaeff during the Spring '08 term at Miami University.

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CH9 stock - Valuation of Financial Assets - Equity (Stock)...

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