Capital

• abercrombie
• arbitrage
• business book
• calculate intrinsic value
• enron stocks
• hybrid fund
• inflation
• intrinsic value of a stock
• job interview etiquette
• leverage
• long term investing
• net worth
• sales margin
• start your own business
• tax bracket table
• turnover
• venture capital

calculate intrinsic value

calculate intrinsic value questions and answers

Learn about how to calculate intrinsic value at the number one young investor website Teen Analyst.

Q: Can someone help me figure out this problem dealing with price to book ratio?
A firm with a book value of $15.60 per share and 100% dividend payout is expected to have a return on common equity of 15% per year indefinitely in the future. Its cost of equity capital is 10% a. calculate the intrinsic price to book ratio b. suppose the firm announced that it was reducing its payout to 50% of earnings in the future. How would this affect your calculation of the price to book ratio? I don't need the answer. Just the process of how to figure it out. I'm trying to help a friend out. Thanks!

A: a. You need to provide a price if you wish to calculate price to book. b. No immediate effect. Future BV will increase.

Q: how do you calculate the intrinsic value of a company?


A: normally, the npv of future cash flows less net assets

Q: Options Pricing Problem.?
Options Pricing Problem. Calculate the call option value at the end of one period for a European call option with the following terms: The current price of the underlying asset = $80. The strike price = $75 The one period, risk-free rate = 10% The price of the asset can go up or down 10% at the end of one period. What is the fundamental or intrinsic value? What is the time premium?

A: At the end of one period the underlying either go up 10% to 88 or go down by 10% to 72. At the end of the period, if the asset goes up the call options is worth max(88-75,0) which is 13 or if the asset goes down its worth max(72-75, 0) which is 0. Assuming equal probability of the asset going up or down the expected value of the option is: 13*1/2 + 0*1/2 = 6.5 at the end of the period. The value of the call option today is the present value of the option at the end of the period C = 6.5 / (1+10%) = 5.91 Now: Call Option Price = Intrinsic Value + Time Premium Intrinsic Value = Underlying Price - Strike = 5 Time Premium = 5.91 - 5 = 0.91