Beruflich Dokumente
Kultur Dokumente
8-5
Principles
pricing
financial
The
fundamentalof
principle
of finance
is that the
true or correct price of a financial asset is the
assets
discounted present value of all future cash flows
to be generated by that asset at desired
discount rate. The following formula is applied
for calculating price of a financial asset:
CF1
CF2
CFn
Po =
1
2
n
(1 k )
(1 k )
(1 k )
8-6
Example
01: Expected dividends from Mega Corporation are
Tk15, Tk.16.5, Tk.20, Tk27.5 and Tk30 in the next
five years. If the required rate of return of the
stockholder of the corporation is 11.5%.
Forecasted reselling price is Tk.120. What is the
current price of corporations stock?
02: Mega capital Inc. just paid a dividend Tk10.50
per share and the dividends are expected to grow
at a constant rate of 5% for next 4 years.
Expected selling price is Tk.150. If investors
require a 12% return, then what is the current
price?
8-7
8-8
Example 01:
There is an investment in Tk.10000,
10%, 12 years bond. Real risk-free rate
in the economy is 7%. The investors
expectation about different risk and
inflation premium are: IP= 2%, DP =
1.5%, MP = 2.5%, LP = 1% & EP = 0%.
What will be the price of this financial
asset?
8-10
Solution
P
1 k ) n 1
= CF
n
k
(
1
k
)
= 1000
1 0.14)
Pn
1 k n
1
0.14 (1 0.14)12
12
10000
12
1 0.14
= 7735.80
8-11
1 0.14)
1
P = Tk.[-15-20 +1000
12
0
.
14
(
1
0
.
14
)
12
10000 15 20
1 0.14 12
= Tk.7694.54
8-12
4 years
Discoun
t rate, k
(%)
4
5
6
7
8
9
10
11
12
13
10 Years
15 Years
20 Years
Price
Price
Price
Price
1036.30 1081.11 1111.18 1135.90
1000.00 1000.00 1000.00 1000.00
965.35 926.40 902.88 885.30
932.26 859.53 817.84 788.12
900.64 798.70 743.22 705.46
870.41 743.29 677.57 634.86
841.51 692.77 619.70 574.32
813.85 646.65 568.55 522.20
787.39 604.48 523.24 477.14
762.04 565.90 483.01 438.02
8-16
5% Coupon Bond
Maturity 15 Years
Principal Tk.1000
Required Yield 13%
Price at 13%= Tk.483.01
Price at 14%= Tk.447.20
Price fall 35.81 i.e. 7.41%
8-19
D=
709.35 647.73
D (Duration) =
2 * 677.57 * 0.005
9.09 (% or X)
8-22