COMM 2202 Lecture Notes - Lecture 8: Growth Stock, Preferred Stock, Hybrid Security
13 Dec 2018
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If you buy a share of stock, you can make money in two ways: the company pays dividends, you sell your shares either to another investor in the market or back to the company capital gains. As with bonds, the price of the stock is the present value of these expected cash ows. The present value of a stock is called it intrinsic or theoretical value of the stock. Fv = 2 i = 20 n = 1. Fv = 16. 80 i = 20 n = 2. The price of the stock is the present value of all expected future dividends. ****** all the same time value of money rules hold ******* i. e. monthly compounding goes with dividend per month everything must match: dividend growth model. Price (at time 0 today) = dividend (1 year from now)/required return growth rate. To get the price today, you need to know the dividend you will receive 1 year from now.
