A Fundamental Approach: Difference between revisions
From Dickinson College Wiki
Jump to navigationJump to search
No edit summary |
No edit summary |
||
| Line 13: | Line 13: | ||
Thus we can draw following Table: | Thus we can draw following Table: | ||
Growth Rate Present Dividend Dividend in 5 yrs Dividend in 10 yrs Dividend in 25 yrs | |||
5 % $1.00 $1.28 $1.68 $3.39 | |||
5 % $1.00 $1.28 $1.68 $3.39 | 10% $1.00 $2.01 $4.05 $32.92 | ||
10% $1.00 $2.01 $4.05 $32.92 | 25% $1.00 $3.05 $9.31 $264.70 | ||
25% $1.00 $3.05 $9.31 $264.70 | |||
Revision as of 15:47, 4 May 2006
Firm Foundation theorists use the fundamental approach to determine the intrinsic value discussed earlier. They look at several main determinants in their analysis of stock prices and future dividends.
Determinant 1: The Expected Growth Rate
In order to unuderstand Growth Rate one must understand how Compound Interest works:
If Jean-Paul invests a Principal, P, of $1.00 at a growth rate, r, of 5%
Present Dividend = $1.00 Dividend in n years = P(1 + r)^n
Thus we can draw following Table:
Growth Rate Present Dividend Dividend in 5 yrs Dividend in 10 yrs Dividend in 25 yrs
5 % $1.00 $1.28 $1.68 $3.39
10% $1.00 $2.01 $4.05 $32.92
25% $1.00 $3.05 $9.31 $264.70
