UCD
ECN 134 -
VALUING STOCKS
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VALUING STOCKS CF associated with holding stocks dividend stream and sales price Short Run Equilibrium Central role of future price expectations beauty contest Explaining future price expecations fundamental valuation Fundamental price Fundamental valuation with growth constant Gordon growth model growing perpetuity in phases need formula for growing annuity 1 Fundamental Value based on Earnings Why not FV PV of future earnings Four scenarios 1 Full distribution of earnings 2 Reinvestment of earnings at r opportunity cost of capital Growth equation 3 Reinvestment of earnings above opportunity cost of capital 4 Reinvestment of earnings below opportunity cost of capital 2
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