The two components of required return we want to memorize d over p plus G so if we switch around that constant growth equation us for p and software are we get the required return of any stock what do you want when you buy stock you want dividend yield plus capital gains yield those are the two required elements of required return looking tour learning objectives we have three for this chapter we want to know and learn how to value common stock we’re going through some of those models.
what are some of the features of common stock and preferred stocks and how are differentiation finally where do we buy our stocks and answer on the stock markets and we’ll go over some of the stock market’s common stock valuation is a little bit more difficult than bond valuation as I’ve said we don’t have any promise cash flows whatsoever I’m like a bond where you have a promise to coupon you don’t know if the company will be in financial difficulty or not the life of the investment is for every.
Hope the corporation goes on forever so there’s no maturity date I’m like a bond which has corporate bonds -year maturity date there’s no easy way to look at the required rate of return as you can with the bond market so little bit more difficult to value so what is the price of the stock today it’s equal to doesn’t value of the dividends plus some price in the future all discounted back to today and we can go on and on discount all the dividends back dividend one dividend two different three different for.
If we push out that piece up to the prices stock out far enough that kind of falls off the map because it’s discounted by such a large factor that there isn’t much value so we could say in general the price of the stock today is equal to the present value.
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