ECO349H5 Lecture Notes - Lecture 6: Strn, Tums, Dividend Discount Model
Document Summary
Lecture #6 - stock market, efficient market hypothesis. Common stock - principal ways corporations raise equity. Stockholders - right to vote, residual claims on firm funds. Dividends - payments made periodically, usually every quarter set by board. Let t+n denote the state at time t+n. The state is a complete description of the world at time t+n that summarizes all outcomes in the economy that are relevant for generating or valuing future cash flows. The state may include, for example, whether the economy is in expansion or recession, whether you are employed or unemployed, whether the firm had high demand for its product, etc. State may be a war in middle east, el nino, donald trump as president. Let st+n be the set of all possible states at time t+n. Let t(n, t+n ) denote the price at time t of at time t+n when the state turns out to be.
