Present Value of Stock - Zero Growth
P=DividendsRequired Return
Dividends(Div) | ||
Required Return(r) | ||
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UUID | 386ec13d-0cf3-11e4-b7aa-bc764e2038f2 |
The Present Value of a Stock with no growth is a theoretical approach to valuing stock whereby the dividends per period are divided by the required return per period.
Where:
- P = Price
- r = Required rate of return
The present value of a stock is broadly considered the sum of the discounted future cash flows. Dividends are considered the future cash flows as the appreciation of a stock is not realized unless sold. Since the stock is held with no maturity date, one could consider a stock to be a perpetuity, in that its dividends are to be received infinitely.
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