# Unit 3 Notes: Valuing Stocks and Bonds

Corporate Finance lecture notes for the EMBA at UNSW.

Stocks and Bonds | Financial mathematics |

P_{0} = Price of stock at time = 0 | A_{∞}= Present value of perpetuity |

d = Dividend cash flow | R = Regular cash flow |

r_{e } = Required return on equity | r = Rate of return |

Valuing constant dividends

P = is the same formula as perpetuity constant growth rate

Valuing constant growth rate

is the same formula as perpetuity

g can be +ve or –ve growth

Rough estimate of ‘g’

Growth occurs by re investing profits into profitable project.

Disadvantage: there are other ways company can growth without reinvesting back into project. E.g. Enter new market.

g = Plowback ratio x Return on Equity

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