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ANALYSIS OF COMMON STOCK VALUATION

COMMON STOCK VALUATION METHODS


Investor can use two methods for common stock valuation in which investor try to find out expected risk or return.

  • Dividend Discount Model
  • Dividend Growth Model


In these method first we find out the expected value and then compare with actual value and then take the decision we should buy the security or not. these are mostly risky investment.

Dividend Discount Model:


V = D1/(1 + ke)1 + D2/(1 + ke)2 + ........ Dn/(1 + ke)n

Discounting:
The present Value of future amount is called Discounting.

Example:
Suppose V=37 Expected Value or its also called Intrinsic value
MV= market value

Rules:
if Intrinsic Value  > MV   then buy the security            
         suppoes  IV=37             MV=  32

If Invrinscic (IV) < MV  then not buy the security
suppose   IV = 37     MV = 40
       
if IV=MV then break even
suppose   IV=37 and MV=37

Dividend Growth Model:

V = D1 /ke-g
V=Intrinsic value or Expected value

Rules:
if Intrinsic Value V > MV   then buy the security
If Invrinscic V < MV  then not buy the security
if V=MV then break even

Example:
V =46 and MV =42  now security will buy   because V>MV


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT
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