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adeleyead says

I am also referring to question 7. I thought P in the formula is the market value of the shares and not the dividend? I would have expected that the market value of the dividend in 3 yrs time would be 20c X 1.04 = 20.8c. Why are we then discount the discount year 1 & 2 with the current value of the dividend and year 3 with the present value of the equity?

John Moffat says

P in the formula is indeed the market value. 20.8 is the dividend in 3 years time, not the market value!!!

The market value, as I explain the lectures, is the present value of future dividends. Once the dividend starts growing, then we can use the formula to calculate the MV at that time. But everything then needs discounting to get the PV ‘now’.

raheel95 says

However in this example we have discounted the dividend in 1 years and 2 years time (20c) and then the MV (18.9) from 2 years onwards.

Why do we not discount the MV for years 1 and 2 to be consistent with our approach with year 2 onwards?

Thanks

John Moffat says

The approach is 100% consistent.

You will know from the earlier lectures that the MV of the shares is the PV of the future dividends. 189 is the PV value of the dividends from time 3 onwards, but is a PV in 2 years time. To get the PV at time 0 we therefore discount for a further 2 years. We add this to the PV of the dividends at time 1 and time 2 and therefore get the total PV of the future dividends, which is the MV of the shares.

saritha1 says

Hi I just wanted to know why is the market value taken for yr3 and just the dividend in year 1 and year 2 while discounting?

Thanks in advance

John Moffat says

Which example are you referring to?

saritha1 says

example 7..

fatin123 says

Hi sir, i still don’t get it why for the example,the discount factor is 0.756 instead 0.658. Can you help me please with this. Thank you

dahawy says

Hi I have question in example 7, the last one in the video. You discuss how after the two years of fixed dividends at 20c, we discount the 189c at the 2 year rate of 15% on the PV table (0.756).

I would have assumed we discount the amount for the 3rd dividends 189c at PV for 3 years at (0.658), would you mind explaining why this is done.

Hope you understand my question ðŸ™‚

Really appreciate the help.

John Moffat says

Because using the formula gives a PV now when the first dividend is in 1 years time.

When the first dividend is in 3 years time (which is 2 years later than in 1 years time), then the formula gives the PV in 2 years time (again 2 years later) and so needs discounting for 2 years.

dahawy says

Thank you for your quick response ðŸ™‚

John Moffat says

You are welcome ðŸ™‚

Zeshan957 says

Sir I understand but 1 confusion ,

but then why we use discount factor .756 for 2nd year dividend of 20c, why not .870. bcz its is 1 years later than in 1 years time

Shivangi says

In one year, we’ll get 20c -which we discount at .870

In two years, we’ll get another 20c that year -which we discount at .756

However, after two years, the dividend will grow constantly forever/in perpetuity (So in the third year we get 4% more than a 20c dividend). -The PV of That^ at the end of the second year is 189c.

So we added that 189c to the 20c we receive in year 2 and discounted together at .756

manishatai says

Is the market price of a share the current price per share?

John Moffat says

Yes – it means the same thing, the price at which it is being traded on the stock exchange.

manishatai says

Thank you!

John Moffat says

You at welcome ðŸ™‚