FIN302: Chapter 9 Notes
FIN302: Chapter 9 Notes FIN302
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This 3 page Class Notes was uploaded by Giulia Dias Roncoletta on Monday October 19, 2015. The Class Notes belongs to FIN302 at University of Miami taught by Frank Peterson in Summer 2015. Since its upload, it has received 63 views. For similar materials see FIN 302 - Fundamentals of Finance in Finance at University of Miami.
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Date Created: 10/19/15
Chapter 9 Stocks and Stock Valuation Theory What is a stock an ownership share in a corporation receives dividends if declared last in line of all claim holders Why does a stock have value stocks provide an expectation of future monetary reward we can use DCF valuation to determine the value value of company can be viewed as the PV of cash that can be removed from business over life Intrinsic value value determined A CouponEng the two securities Bond valuation 300d bundle of fixed cash flows bond 390 a 392 39a 394 399 39o 7 an annuity of coupons 3 t t t t f t t a future face value PV 1m rm rm rm rm Int FV Stock to 1 392 3 H 5 396 t7 t t t i 5 t 3mm W Div on on on on on no growth scenario Price at to Dividend r r appropriate discount rate treat stock like a perpetuity to find its price dividend are payments and r is the rate In a GROWING Scenario Gordon Growth Model Po D1 r39g Example Constant Dmdend Growth MOM Dividend Growth Example I NextdquotdendD4 dw39dend 01 f4 Requirez returst 316 Requured return 16 o Expected 9mm 67 Expected growth 6 P Price today Po DI z 1 quot 9 quot r 4006 505 5050 Date Wednesday October 7 2015 ChapterChapter 9 cont MultiStage Model When dividend rates change for a forever rate thats when the perpetuity begins P3 D4 PV of perpetuity r39g then get that number and find the present value of it Deferred Dividend Does not pay dividend expects a dividend at specific time Dividend growth formula pv one period before the first dividend then pv back to period one present valuefuture value formula Price Earning RationPE one of the 3 most quoted stats in finance stock price per share PE expected amount earnings per share observed amount It tells you how expensive a stock is relative to its earnings price F expectations about future earnings current Higher PE future growth paying for optimism Lower PE not expected to grow much It tells you how much of this future optimistic growth will actually be actual tech stocks usually have a high PE Value of Growth PVGO vitally important for value of company Price Multiple crude way of valuing a stockcompany quick n dirty valuation Price ESP X MULTIPLE R D1 g D1P0 dividend yield Po g capital gain yield Preferred Stock no need to dwell much on pays constant dividend must get before common share these dividends are cumulative preferred no voting rights level perpetuity no growth Stock Valuation problem 200000 Decline 4 r 1300 pv 200000 1176471 13 04
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