What is the general formula used to calculate the price of a share of
QUESTION
What is the general formula used to calculate the price of a share of a stock? What does it mean?
is also calculated by discounting the expected future cash flows at the required rate of return. In case of shares, the expected future cash flows are the dividend payments. Since common stock is issued for the life of the company and every company is assumed to be a going concern, hence the shares are not redeemable and thus we cannot expect a redemption or sale value for stocks. Thus, only the future expected dividends are discounted to calculate the price of share. Dividends for each year are discounted and then they are added to calculate the price.
ANSWER:
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