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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A Few Words on Valuation<br />
There are three basic valuation methods, namely,<br />
Discounted Cash Flow (DCF) Method<br />
Relative Valuation Method<br />
Contingent−Claim Method<br />
Values <strong>of</strong> securities rarely stay constant.<br />
Valuation is not a one−time job. Re−valuation is always<br />
needed.<br />
We usually don’t observe the discount rates. We<br />
observe prices instead and infer discount rates from<br />
changes in prices. The return is the discount rate.<br />
In a well−functioning financial market, we can<br />
estimate a discount rate for each type <strong>of</strong> security <strong>of</strong><br />
varying degree <strong>of</strong> risk.<br />
Last Updated: June 11, 2009 © 2009 Charn Soranakom, Ph.D. <strong>Session</strong> 4 | Slide 2 <strong>of</strong> 19
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