The valuation of securities - The valuation of equity - ACCA Financial Management (FM)

The valuation of securities - The valuation of equity - ACCA Financial Management (FM)
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[@tumelohumphrey2186]

thank you for this...it really helped me understanding the-topic

[@blackm9063]

Valuable and clear

[@cindyrobinson735]

alternatively 2 years it was 20. Cents Present value is 20 times the Anuity factor at 15%, which is 1.626. This gives us 32.52 cents as PV of the didends over the 2yrsThereafter, in year 2, it will start growing, so what is the value of 20 cents in year 2? Its value is 20 cents x PV factor of at 15%, which is .756, and this gives a value of 15.12 cents. So now using the growth formula 15.12 (1.04) ÷ (.15-.04) = 142.95 Cents. So therefore over 2yrs Accumulated Market value = 32.52 + 142.95 = 175.47 cents or $17547

[@jiyaahuja1868]

Why didn't we use the simple formula which we used earlier to find the market value for first two years ..20/15 ?

[@saltlifo5598]

Hi, should not the answer be 156.78 cents, because the third year discount factor is to be calculated in year 3,

[@opentuition]

No - the answer is correct. When the first dividend is in 1 years time, the formula gives the present value 'now' (i.e. at time 0). When the first dividend is in 3 years time (which is 2 years later than in 1 years time) then the formula gives the present value 2 years later than time 0 ( i.e. at time 2).