By P. Glabadanidis
Absence of Arbitrage Valuation provides a unified asset pricing technique via absence of arbitrage and applies this framework to such disparate fields as fastened source of revenue protection pricing, foreign currencies spots, and ahead charges.
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Extra resources for Absence of Arbitrage Valuation: A Unified Framework for Pricing Assets and Securities
Note that the forward price-to-book ratio is increasing in the expected growth rate g, if and only if ROE > re . , rates of economic proﬁts that exceed the opportunity cost of the next best alternative, the shareholders’ required rate of return on equity. Note also the pernicious of pursuing growth for its own sake when the company is failing to earn its required rate of return on equity, ROE < re , in which case increasing g will lead to a lower value of the forward price-to-book multiple. 4 Price–Sales Ratio The ratio of stock price per share to revenue or sales per share gives us the price-to-revenue ratio or, as it is usually referred to by analysts, the price-to-sales or PS ratio, in short.
The formula clearly takes into account the fact that depreciation is not a cash expense and that only the net capital expenditure, over and above any depreciation charges is what matters for the purposes of determining any remaining equity-free cash ﬂows. Similarly, the change in the indebtedness of the ﬁrm is a potential source of cash ﬂow to shareholders as new net debt issues are available to shareholders as both a source of investment and/or a source of cash to pay dividends to or buy back shares from shareholders.
7) Combining this terminal value from H model with the ﬁrst stage of high growth leads to the following expression for the value per share in the three-stage model: DPS0 (1 + g1 ) 1 − VE0 = 1 + g1 1 + re,1 n1 re,1 − g1 + DPS0 (1 + g1)n1 (1 + g2 + (n2 /2)(g1 − g2 )) . 4 plots the forecasted growth rate of dividends per share over time in a three-stage dividend discount model where the second and the third stage use the H model. Occasionally, one might want to have three stages with distinctly different but constant dividend growth rates for the duration of each stage.
Absence of Arbitrage Valuation: A Unified Framework for Pricing Assets and Securities by P. Glabadanidis