DOC PREVIEW
UCD
ECN 134 -
VALUING STOCKS
View full document
Premium Document
Do you want full access? Go Premium and unlock all 2 pages.
Access to all documents
Download any document
Ad free experience
Unformatted text preview:
View Full Document
VALUING STOCKS• CF associated with holding stoc ks— dividend stream and sales price• Short Run Equilibr ium— C entral role of future price expectations (“beaut y contest”)• Explaining future price expecations:— fundamen tal v aluation— Fundamen tal price• Fundam e ntal va lu a tion with growth— constant: Gordon growth model(gro w ing perpetuit y)— in phases∗ need formula for grow ing ann uit y1Fundamental Value based on Earnings• Why not FV = PV of future earnings?Four scenarios1. Full distribution of earnings2. Reinv estmen t of earnings at r (opportunity cost of capital)• Growth equation3. Reinv estmen t of earnings abov e opportunity cost of capital4. Reinvestment of earnings below opportunity cost of
View Full Document
Unlocking...