There's the dividend discount model:
Todays Value = (D1 / (1+r)1) + (D2 / (1+r)2) + (P / (1+r)3)
Basically: it takes the dividend from year one (D1), and discounts that with a discount factor (1+r)1 and it does that for every year.
Finally you have the price at which you sell the stock (P), and also discount that. If you sum all these discounted cashflow, you get the value that all these cashflows are worth today.
Basically, it calculates the presumption that 'money in say 3 years from now is worth less as money today' and so it gives a suggestion of what that money in the future would be worth paying for today.
What I would like to do is to solve for 'r' (the 'rate of return'). So given that I know 'Todays Value', I would like to be able to calculate what 'r' had been in that situation.
I've been working at this for a few hours now, but my math brain proves to be a bit to small to solve this, so I'd appreciate any help I can get.
Thanks and kind regards,
Andy
Todays Value = (D1 / (1+r)1) + (D2 / (1+r)2) + (P / (1+r)3)
Basically: it takes the dividend from year one (D1), and discounts that with a discount factor (1+r)1 and it does that for every year.
Finally you have the price at which you sell the stock (P), and also discount that. If you sum all these discounted cashflow, you get the value that all these cashflows are worth today.
Basically, it calculates the presumption that 'money in say 3 years from now is worth less as money today' and so it gives a suggestion of what that money in the future would be worth paying for today.
What I would like to do is to solve for 'r' (the 'rate of return'). So given that I know 'Todays Value', I would like to be able to calculate what 'r' had been in that situation.
I've been working at this for a few hours now, but my math brain proves to be a bit to small to solve this, so I'd appreciate any help I can get.
Thanks and kind regards,
Andy