Outline of Session Outline of Session 4
Outline of Session Outline of Session 4
Outline of Session Outline of Session 4
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Stock Valuation (cont…)<br />
Case 1: Assuming no growth in dividends<br />
Div1<br />
Div1<br />
P<br />
0<br />
=<br />
r<br />
S<br />
=<br />
r or P<br />
S<br />
Case 2: Assuming a constant growth in dividends (g%)<br />
Div1<br />
Div1<br />
P<br />
0<br />
=<br />
r<br />
S =<br />
+<br />
g<br />
r<br />
−<br />
g or<br />
P<br />
S<br />
Case 3: Assuming a non−constant growth in dividends<br />
P<br />
0<br />
=<br />
Div<br />
1<br />
2<br />
( 1 + r ) ( 1 + r ) ( 1 + r )<br />
S<br />
+<br />
Div<br />
S<br />
2<br />
+ ... +<br />
Div<br />
S<br />
t<br />
t<br />
+<br />
0<br />
0<br />
⎡Div<br />
⎢<br />
⎣ r<br />
t<br />
S<br />
( 1 + g)<br />
−g<br />
( 1 + r ) t<br />
S<br />
⎤<br />
⎥<br />
⎦<br />
Last Updated: June 11, 2009 © 2009 Charn Soranakom, Ph.D. <strong>Session</strong> 4 | Slide 14 <strong>of</strong> 19
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