2.2.2.2. Valuing Stocks

Question 1

What is the Law of one price?

Answer 1

implies that to value any security, we must dertermine the expected cash flows an investor will receive from owning it

Question 2

The dividend discount model

1. Constant Dividend
2. Constant Dividend Growth Model

In practise?

Answer 2

1. illistrated as perpetuity
2. perpetuity with growth factor

In Practise, usuallym the dividends of the first N years are explicitly estimated and constant growth is assumed thereafter