Outline of Session Outline of Session 4

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Stock Valuation (cont…) Case 1: Assuming no growth in dividends Div1 Div1 P 0 = r S = r or P S Case 2: Assuming a constant growth in dividends (g%) Div1 Div1 P 0 = r S = + g r − g or P S Case 3: Assuming a non−constant growth in dividends P 0 = Div 1 2 ( 1 + r ) ( 1 + r ) ( 1 + r ) S + Div S 2 + ... + Div S t t + 0 0 ⎡Div ⎢ ⎣ r t S ( 1 + g) −g ( 1 + r ) t S ⎤ ⎥ ⎦ Last Updated: June 11, 2009 © 2009 Charn Soranakom, Ph.D. Session 4 | Slide 14 of 19
Where Does g Come From? Year 1 2 3 4 BV of Equity per Share 100.00 105.00 110.25 115.76 Return on Equity (ROE) 10.00% 10.00% 10.00% 10.00% Earnings per Share (EPS) 10.00 10.50 11.03 11.58 Payout Ratio 50.00% 50.00% 50.00% 50.00% Retention Ratio (1−Payout Ratio) 50.00% 50.00% 50.00% 50.00% Dividend per Share (DPS) 5.00 5.25 5.51 5.79 Growth Rate in Dividends (g) 5.00% 5.00% 5.00% Growth Rate in EPS (g) 5.00% 5.00% 5.00% Growth Rate in Stock Price (g) 5.00% 5.00% 5.00% Stock Price (assuming PE=20) 200.00 210.00 220.50 231.53 Last Updated: June 11, 2009 © 2009 Charn Soranakom, Ph.D. Session 4 | Slide 15 of 19
Page 1 and 2: Outline of Session 4 Three Basic Va
Page 3 and 4: Bonds Bonds are one type of fixed i
Page 5 and 6: Calculation of Bond Price Example:
Page 7 and 8: These curves are convex. Last Updat
Page 9 and 10: Interest Rate Risk (or Price Risk)
Page 11 and 12: Stocks and the Stock Market Stocks
Page 13: P P 0 1 = = Div 1 ( 1 + r ) ( 1 + r
Page 17 and 18: Preferred stock is classified as e
Page 19: In−class Exercises Let’s do som

Outline of Session Outline of Session 4

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