Upload
jyoti-yadav
View
331
Download
1
Embed Size (px)
DESCRIPTION
Important Info for increasing the knowledge.
Citation preview
UNIT 3: VALUATION OF SECURITIES
GROUP : 4
Valuation of Securities One of the most important functions of
financial management is to enhance the market value of the securities of the organization and thereby increase the wealth of the organization.
Securities are valued on different basis such as book value, market value, intrinsic value etc.
Concept of Value
1. Book value 2. Market value 3. Intrinsic value 4. Going concern value 5. Liquidation value
Bond & Stocks
A bond is a promissory note or an instrument of indebtedness of the business unit or government.
Bonds values and Yields
Present Value of Redeemable Bond or Debenture
Value=(INT*PVIFA)+(R.V*PVIF)
=(INT * (1 - 1 )+ (R.V* ( 1 )
(1+r)ⁿ (1+r)ⁿ
r
I=Interest n= no of year
R.V= Redeem value
r= rate of return
Present Value of Irredeemable Bond Or Debenture
VALUE= INTEREST
rate
Expectation Theory “ Expectancy theory emphasizes the
needs for organizations to relate rewards directly to performance and to ensure that the rewards provided are those rewards deserved and wanted by the recipients.“
expectation theory is a strategy used to predict the future performance of interest rates
This theory can be use in prediction of short term interest rates
Valuation of Preference Shares Present Value Of Redeemable Preference
Shares
VALUE=DIV*PVIFA+R.V*PVIF
=(DIV * (1 - 1 )+ (R.V* ( 1 )
(1+r)ⁿ (1+r)ⁿ
r
D= dividend n= no of year
R.V= Redeem value
r= rate of return
Present Values Of Irredeemable Preference Shares
VALUE= DIV
r
Valuation of Equity Shares Methods of Valuation of Equity
shares: 1. Dividend capitalization method 2. Earning capitalization method 3. Dividend capitalization method:
Valuation Models Under Dividend Capitalization Method
A. finite period valuation Model
Po=Dividend*PVIFA+M.P* PVIF
=(DIV * (1 - 1 )+ (M.V* ( 1 )
(1+r)ⁿ (1+r)ⁿ
r
D=Dividend n= no of year
M.V= Market price
r= rate of return
B. Multi period a. Constant Dividend rate: Po= Dividend
r
b. Constant Growth in Dividend
Po= Dividend
r – g
c. Variable Growth in Dividend
Po= Dividend
r - g
2 Earning Capitalization Method
Po=Earnings
r P0 = Current price of an equity share. E1 = Expected earnings per share r= required rate of return on equity
shares
THANK YOU