Learning Team Reflection
Stock Valuation Video Review
FIN/571
Stock Valuation Video Review
Introduction
The video entitled “Concept Review Video: Stock Valuation”, explores various concepts when it comes to the avenues of financial growth given to you by Katrine Lang, a former lawyer now private investor manager. This includes but not limited to bonds, common stock, preferred stock and portfolios. Another element that will be explored is stock valuation and what requirements must be followed to ensure the best valuation for the company.
Stock Valuation Methods
Stocks overtime can accrue and grow significantly. A stock is defined as owning a small portion of the company, and it trades at the residual value after all the obligations of that company are paid off (WileyPLUS, 2013). Bonds are less risky, but there is also less opportunity to grow compared to the stocks. Bond valuations are easy and transparent; the market participants know the magnitude and timing of the expected cash flows as promised by the borrower (Parrino, Kidwell, D. S, & Bates, 2012). Bonds are redeemable with a maturity rate. The required rate of return for a bond is the market interest rate, called the bond’s yield to maturity (Parrino, Kidwell, D. S, & Bates, 2012). It is the annual yield that the investor earns if the bond is held to maturity and all the principal payments pay as promised. A bond’s yield to maturity changes daily as interest rates increase or decrease, but its calculation is always based on the issuer’s promise to make interest and principal payments as stipulated in the bond contract (Parrino, Kidwell, D. S, & Bates, 2012).
Stock valuation is used to calculate abstract value of the stocks. There are many different ways to approach the valuation of stock. “One approach is to develop a stock-valuation model and compare the value estimate from the model with the market price” (Parrino, Kidwell, D. S, & Bates, 2012). It is a way to predict...