alue Book Value: value of an asset as shown on a firm's balance sheet: historical cost Liquidation value: amount that could be received if an asset were sold individually Market value: observed value of an asset in the marketplace; determined by supply and demand Intrinsic value: economic or fair value of an asset; the present value of the asset's expected future cash flows
Value • Book Value: value of an asset as shown on a firm’s balance sheet; historical cost. • Liquidation value: amount that could be received if an asset were sold individually. • Market value: observed value of an asset in the marketplace; determined by supply and demand. • Intrinsic value: economic or fair value of an asset; the present value of the asset’s expected future cash flows
Security valuation In general. the intrinsic value of an asset- the present value of the stream of expected cash flows discounted at an appropriate required rate of return。 Can the intrinsic value of an asset differ from its market value?
Security Valuation • In general, the intrinsic value of an asset = the present value of the stream of expected cash flows discounted at an appropriate required rate of return. • Can the intrinsic value of an asset differ from its market value?
Valuation SC (1+k) t=1 C.= cash flow to be received at time t k= the investors required rate of return V=the intrinsic value of the asset
Valuation • Ct = cash flow to be received at time t. • k = the investor’s required rate of return. • V = the intrinsic value of the asset. V = t = 1 n S $Ct (1 + k)t
Bond valuation Discount the bonds cash flows at the investors required rate of return
Bond Valuation • Discount the bond’s cash flows at the investor’s required rate of return
Bond valuation Discount the bonds cash flows at the investors required rate of return the coupon payment stream(an annuity)
Bond Valuation • Discount the bond’s cash flows at the investor’s required rate of return. – the coupon payment stream (an annuity)