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.
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Valuation of equity
9y ago#1The 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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