I use an intrinsic valuation formula based on earnings growth. I talk about the formula I use (and how to apply it) in this video if you want to check it out! ruclips.net/video/bwYcgeCGCk4/видео.html
Hamish Hodder - Stock Market Investing Thanks, I was already going over that video while you were replying, your videos are nice and very informative, Nick from Positive investing recommended your channel and now I know why
Agreed, that is the only question I have. Everything else is super straight forward and easy to understand. Just curios how you decided on 10% as the discounted rate
Your discount rate depends on two things basically. One how much opportunity cost you are bearing and two how much risk you are willing to take. Let's say you have two options to invest your money. First is the stock of this video, and second one is putting that money onto your savings account. Let's also say that the bank will give you a 2% interest per year. Now if you don't buy the stock, and put in into the bank then you will enjoy a fixed 2% return. But if you do buy the stock, you will miss that "opportunity". That is why your opportunity cost in here is 2%. For risks there are many risks you have to bear when you buy that stock. One is inflation, that means even if you get 100 dollar 10 years later, that money won't worth 100 dollar in respect to today's 100 dollar. Another one is maturity risk, basically the longer you hold a security the larger the risk is. So you quantify those risk and get a rate in the end. For simplicity sake let's just say that you consider only the yearly inflation, let that be 5%. Now your discount rate will be (2+5%) = 7% which is also your required rate from the stock.
Thank you so much for the explanation, I have been suffered from this for the entire semester. Finally, I understood!
Its a tricky concept to grasp, glad I could help!
Thank so much. Sometimes you can easily recognize a good teacher😉
Excellent Explanation.
Thanks for the video great stuff so far. Question! is the Required return from your previous video the same as the discount rate?
Yes it is
Awesome video! Where are you getting i?
How do you determine the future price?
I use an intrinsic valuation formula based on earnings growth. I talk about the formula I use (and how to apply it) in this video if you want to check it out! ruclips.net/video/bwYcgeCGCk4/видео.html
Hamish Hodder - Stock Market Investing
Thanks, I was already going over that video while you were replying, your videos are nice and very informative, Nick from Positive investing recommended your channel and now I know why
The Review Maker Thanks so much!
How did you get 10%? Thank you & great video
Agreed, that is the only question I have. Everything else is super straight forward and easy to understand. Just curios how you decided on 10% as the discounted rate
Your discount rate depends on two things basically. One how much opportunity cost you are bearing and two how much risk you are willing to take. Let's say you have two options to invest your money. First is the stock of this video, and second one is putting that money onto your savings account. Let's also say that the bank will give you a 2% interest per year. Now if you don't buy the stock, and put in into the bank then you will enjoy a fixed 2% return. But if you do buy the stock, you will miss that "opportunity". That is why your opportunity cost in here is 2%.
For risks there are many risks you have to bear when you buy that stock. One is inflation, that means even if you get 100 dollar 10 years later, that money won't worth 100 dollar in respect to today's 100 dollar. Another one is maturity risk, basically the longer you hold a security the larger the risk is. So you quantify those risk and get a rate in the end. For simplicity sake let's just say that you consider only the yearly inflation, let that be 5%.
Now your discount rate will be (2+5%) = 7% which is also your required rate from the stock.