Essay About Intrinsic Value And Current Pricen

Accounting Finance Formula
Accounting Finance Formula
Market capitalization – number of shares outstanding multiplied by price per share (do not confuse with market capitalization rate). Liquidity – the ability to convert an asset into cash easily and at fair valueLong position – if you are “Long” a stock, you own it.Short position — If you are “Short” as stock, you have shorted it.Order TypePurposeTrigger priceMarket OrderTrade (buy, sell or short) at current priceN/ALimit buyBuy at an attractive priceBelow current priceLimit sellSell at an attractive priceAbove current priceStop-lossLimit loss on a long positionBelow current priceStop-buyLimit loss on a short positionAbove current priceLimits and Stops are called contingent trade orders because the trade is contingent on the price.Margin percentage = equity/stockEquity=Assets-LiabilitiesFor long positions the stock is an asset [pic 1] rf= 30 year treasury (thay E(rm)-rf = MRP)When the constant growth DDM holds, the stock price will grow at the same rate as dividendsCapital Gains Yield equals  ‘g’The Expected HPR then is: [pic 2]Growth Rate: g= ROE * bb= plowback ratio= (1- payout ratio)payout ratio = div/EPSROE = Net Income/Shareholder’s EquityThe capital asset pricing model (CAPM) defines the relationship between risk and returnE(RA) = Rf + βA(E(RM) – Rf)Risk-free rateAnalysts and Corporations typically use current market yields on long-term bondsThe expected risk premium of an asset depends on the market risk premium and the systematic risk of the asset[pic 3]the CAPM’s expected return-beta relationship [pic 4]Intrinsic value : [pic 5]  V0= intrinsic value ; E(D1) = expected dividend;E(P1) = expected price; k=market capitalization rateNext year intrinsic value [pic 6]Buy stock and hold it for 2 years: [pic 7]Parameters for Capm     Risk-free rateTextbooks use average historical value  (most recent edition of text uses 3.7%Analysts and Corporations typically use current market yields on long-term bondsMarket Risk premium – Updated 2014Fernandez1 – surveyed analysts, academics and corporations:  5.4%Damodaran – calculated: 5.28%