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

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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
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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
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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 0 =
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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 0 =
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Stock Valuation Models Terms: Growth Rate 5 Can be + or - g = the expected rate of change in dividends per share
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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 =
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