CFA Level 2 | Equity: Continuing Residual Income

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CFA Level 2
Topic: Equity Valuation
Reading: Residual Income Valuation
Continuing residual income refers to the residual income after the forecast horizon.
This video covers the valuation of equity based on:
- the persistence factor.
- premium over book value.
Find out more about the CFA Level 2 exam preparatory courses offered at Noesis (www.noesis.edu.sg/programme/cfa). We offer face-to-face tuition classes (lecture and revision/review) in Malaysia and the Blended Online (B/O) mode for candidates from Malaysia, Singapore, and Vietnam.

[@aquila573]

Amazing! I have been struggling with the Terminal value calculation and its variations for the RI model. KZbin was my last resort and I found you. Thank you so much.

[@FabianMoa]

You're welcome!

[@newmercies1]

This is by far best explanation ever on Multi-stage RI Model. To recap for a 4 year scenario valuation the generic formula would be V0 = B0 + RI/(1+r) + RI2/(1+r)^2 + (RI3 + TV)/(1+r)^3 where TV= RI4/(1+r-ω) no matter what the omega value from 0 to 1.

[@FabianMoa]

You got it! 👏

[@mattguarino8139]

Thank you!

[@dhirajkapur2315]

Very well explained. Thanks for this.

[@hy1955]

Very helpful, thanks!

[@FabianMoa]

Glad it was helpful!

[@johnnywong9652]

nice tutorial thanks

[@hungvuong4149]

Is this formula correct? P/B3=(ROE-g)/(r-g) TV3=P3-B3=B3(P/B3-1)=B3((ROE-g)/(r-g)-1)=B3(ROE-r)/(r-g)=RI4/(r-g) →TV3=RI4/(r-g) or TVt=RIt+1/(r-g)

[@ndumisolushaba2403]

why did you discount terminal value value twice ? when w=0.

[@FabianMoa]

I was just showing that you could either: 1) discount the $2.50 back by 4 years, OR 2) discount $2.50 back by 1 year (to Year 3), then discount it back 3 years to Year 0. The textbook uses Method 2 in their workings, but I personally prefer Method 1.