Discounted Cash Flows By Brendan Mathews. DCF: The best and most fundamental of all investing tools. DCF allows you combine and quantify all of your research.

Slides:

Advertisements

Similar presentations

The Trade-off between Risk and Return

Advertisements

© Mcgraw-Hill Companies, 2008 Farm Management Chapter 17 Investment Analysis.

Bennie D Waller, Longwood University Personal Finance Bennie Waller Longwood University 201 High Street Farmville, VA.

Moving Cash Flows: Review

Net Present Value.

CHAPTER 4 BOND PRICES, BOND YIELDS, AND INTEREST RATE RISK.

Stock Valuation 0 8.  While we value the bonds assuming ½, 1 years time difference between coupon payments, in reality the bond is traded every day.

Lecture 3 How to value bonds and common stocks

FI Corporate Finance Zinat Alam 1 FI3300 Corporation Finance – Chapter 9 Bond and Stock Valuation.

Valuation Under Certainty Investors must be concerned with: - Time - Uncertainty First, examine the effects of time for one-period assets. Money has time.

I.N. Vestor is the top plastic surgeon in Tennessee. He has $10,000 to invest at this time. He is considering investing in Frizzle Inc. What factors will.

9-1 CHAPTER 9 Stocks and Their Valuation Features of common stock Determining common stock values Preferred stock.

Investments 101: Valuing Assets September 15, 2013.

2-1 Copyright © 2006 McGraw Hill Ryerson Limited prepared by: Sujata Madan McGill University Fundamentals of Corporate Finance Third Canadian Edition.

Rate of Return Lesson 2 How Time Value of Money Affects Returns.

Stock and Its Valuation

Lecture: 3 - Stock and Bond Valuation How to Get a “k” to Discount Cash Flows - Two Methods I.Required Return on a Stock (k) - CAPM (Capital Asset Pricing.

Financial Statements Economics 98 / 198 Fall 2007 Copyright 2007 Jason Lee.

Chapter 5. The Time Value of Money Simple Interest n Interest is earned on principal n $100 invested at 6% per year n 1 st yearinterest is $6.00 n 2.

Time Value of Money P.V. Viswanath. 2 Key Concepts  Be able to compute the future value of an investment made today  Be able to compute the present.

Future Value, Present Value and Present Value and Interest Rates.

Basic Tools of Finance Finance is the field that studies how people make decisions regarding the allocation of resources over time and the handling of.

Copyright 2015 by Diane S. Docking 1 Bond Valuation.

P.V. VISWANATH FOR A FIRST COURSE IN FINANCE 1. 2 NPV and IRR  How do we decide to invest in a project or not? Using the Annuity Formula  Valuing Mortgages.

Fundamental Analysis Using Accounting in Valuation Stephen H. Penman Columbia University Xiamen University, June 24, 2006.

Lecturer: Shaling Li Acc&Fin Dept, PBS University of Portsmouth 22 October, 2009.

GEK2507 Compound & Prosper GEK2507 Frederick H. Willeboordse

DES Chapter 2 1 Chapter 2 A Complete Corporate Valuation for a Simple Company.

1 Microeconomics Lecture 11 Capital market Institute of Economic Theories - University of Miskolc Mónika Orloczki Assistant lecturer Andrea Gubik Safrany,

The Time Value of Money Compounding and Discounting Single Sums.

19-1 Financial Markets and Investment Strategies Chapter 19.

How to Value Bonds and Stocks

Strategic Capital Group Workshop #4: Bond Valuation.

Burger Wealth Management Firm Model An exercise to build a better business Timothy Burger.

1 Slides for BAII+ Calculator Training Videos. 2 Slides for Lesson 1 There are no corresponding slides for Lesson 1, “Introduction to the Calculator”

Understanding the Concept of Present Value. Interest Rates, Compounding, and Present Value In economics, an interest rate is known as the yield to maturity.

CHAPTER 5 BOND PRICES AND RISKS. Copyright© 2003 John Wiley and Sons, Inc. Time Value of Money A dollar today is worth more than a dollar in the future.

Solution sketches, Test 2 Ordering of the problems is the same as in Version D.

Copyright © 2004 South-Western 27 The Basic Tools of Finance.

FIN 351: lecture 4 Stock and Its Valuation The application of the present value concept.

© 2009 Cengage Learning/South-Western The Time Value Of Money Chapter 3.

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 5-0 Corporate Finance Ross  Westerfield  Jaffe Seventh Edition.

Opportunity Cost of Capital and Capital Budgeting Chapter Three Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

 Would you rather have a dollar today or a dollar next year?  Present Value: The use of interest rates to compare the value of a dollar realized today.

Metrics to Analyze a Stock Stock picking is an Art not a Science – best application of theory Intangible and Tangible information available and difficult.

Money and Real Economy Money, Bonds, Monetary Policy, GDP 1.

Investment and portfolio management MGT 531. Investment and portfolio management Lecture # 21.

The Investment Decision Process Determine the required rate of return Evaluate the investment to determine if its market price is consistent with your.

ECON 201 Lecture 4-5(a) Finance: Net Present Value & Benefit/Cost Analysis.

How Do Bond Prices Change? Bonds are sensitive to interest rates It depends on the rate at which you issued the bond – A 1 year T-bill is paying 1.2% interest.

1 IIS Chapter 5 - The Time Value of Money. 2 IIS The Time Value of Money Compounding and Discounting Single Sums.

How to Value Bonds and Stocks. 2 What is a Bond? A bond is a legally binding agreement between a borrower and a lender  IOU.

8-1 Stocks and Their Valuation. 8-2 Cash Flows for Stockholders If you buy a share of stock, you can receive cash in two ways The company pays dividends.

Random Thoughts for Investing You can make money without gambling.

Chapter 5 - The Time Value of Money  2005, Pearson Prentice Hall.

CHAPTER 4 BOND PRICES, BOND YIELDS, AND INTEREST RATE RISK.

Test 1 solution sketches Note for multiple-choice questions: Choose the closest answer.

Chapter 9 Valuing Stocks. 9-2 Stock Prices, Returns, and the Investment Horizon Common Stock - Ownership shares in a publicly held corporation. What does.

4-1 Introduction Credit is one of the critical mechanisms we have for allocating resources. Although interest has historically been unpopular, this comes.

© 2016 Pearson Education, Inc. All rights reserved.4-1 Your Stock Portfolio Each of you has $1,000 to invest The length of your investment is January 11.

Chapter 3 Time Value of Money: An Introduction. Chapter Outline 3.1 Cost-Benefit Analysis 3.2 Market Prices and the Valuation Principle 3.3 The Time Value.

Chapter 3 Additional Time Value of Money Problems.

Concept of Valuation Valuation of Different Types of Securities Calculation Of expected Market Value.

1 The Time Value of Money. 2 Would you prefer to have $1 million now or $1 million 10 years from now? Of course, we would all prefer the money now! This.

Great investors and their quotes. They successfully tried to understand the market and made history.

Chapter 8- The Great Depression Essential Question- How did the collapse of the economy impact the United States?

Present Value of Bond Depends –Time to Maturity(Duration) –Yield to Maturity or Market Interest Rate: Interest rate fluctuate depending on risk –Face Value.

SECURITY ANALYSIS & BUSINESS VALUATION CA AMIT SINGHAL.

Chapter 13 Learning Objectives

Presentation transcript:

Discounted Cash Flows By Brendan Mathews

DCF: The best and most fundamental of all investing tools. DCF allows you combine and quantify all of your research and knowledge about a company. DCF allows you to compare the market’s expectations to reality Does your favorite stock- purchasing yardstick … Objectify your decisions? Protect you from speculative crazes? Help you outsmart Wall Street from your dorm room?

PANIC! RALLY! PANIC! GREED! FEAR! GREED! FEAR! RALLY! PANIC! RALLY! GREED! FEAR! GREED! FEAR! PANIC! RALLY! PANIC!

Markets are Illogical The action of the market is determined by the millions of individuals constantly buying and selling. As a group, these individuals don’t act reasonably. In any given day, stock prices plummet or soar based on rumors, emotions and whims.

Dangerous Swings Popular stocks get bid into the stratosphere simply because they’re popular; down-trodden issues are stomped for being down-trodden. Herd mentality controls the market, and as part of the herd you’re likely to find yourself buying high and selling low. Unless you have the time, training and temperament to think independently, the market is a very dangerous place.

…..the Solution??? Intrinsic Value investing: – Benjamin Graham –Warren Buffet –Bill Miller.

Benjamin Graham In the short run, the market is a voting machine. In the long run, the market is a weighing machine. In a time period of less than 5-10 years, the market assigns prices based on the emotional whims of fickle investors. In a time period of more than 5-10, the market assigns prices objectively based on a company’s earnings.

WARREN BUFFET Don’t search for the greater fool because eventually you’ll find yourself to be the greatest fool. A company is worth its future streams of revenue adjusted to present value.

DCF and Present Value Based on the common sense notion that a dollar in the future is worth less than a dollar today – money has an opportunity cost. PV = FV / (1+i) n where: –PV = present value –FV = future value –i = interest rate –N = years

Coupon Bond EXAMPLE: Five year bond, face value of $1000, yearly coupon payment of $75 PV = 75/(1+.10) /(1+.10) /(1+.10) /(1+.10) /(1+.10) /(1+.10) 5  =

Three Easy Steps 1)Estimate future earnings 2)Pick a discount rate 3)Adjust future earnings to present value

“All intelligent investing is value investing.” – Charlie Munger

QUESTIONS?