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hello sir. Its really hard for me to understand the wording in questions of discounting.
all 6 examples from the lecture on valuation of equity seem easy but the question 7, i didnt understand at all.
the wording like ” in 3 years time” you said it means after 2 years. totally lost 🙂
the wording like “Market value in 2 years while we use dividends in 3 years time dividing by Re less G.(growth rate)
And most importantly, why do we use 2 yrs while using 189c? not 3.
PLease help me to understand discounting. especially years more deeply.
The dividend growth formula give the market value at time 0, assuming that the first dividend in is 1 years time (time 1).
If the first dividend is in 3 years time (which is 2 years later that in 1 years time) then the formula also gives a present value 2 years later i.e. at time 2 instead of time 0, and therefore needs discounting for a further 2 years.
I cannot explain more about discounting in general other that what is in my free lectures It might help you to watch the Paper F2 lectures on discounting as well.
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