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Explain how you would value a stock. Provide an example of valuation of a stock based...

Explain how you would value a stock. Provide an example of valuation of a stock based on retrieved real data. Include evidence of the retrieved data in your answer. Compare your valuation with the actual price of the stock at the designated time for your valuation..please give detailed answers. Thank you.

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Answer #1

I can value a stock using various kind of valuation model but I would most likely to rely upon absolute value model which will be inclined towards finding out the intrinsic value of the money based upon the cash flows associated with the Company and Dividend associated with company.

I will value company called Reliance on the basis of the Dividend, it is paying to the shareholders.

I will be using dividend discounting model in order to find out the intrinsic value company.

The Dividend which been issued by the Reliance is 80 . The growth rate of dividend is is 5% whereas, the required rate of return from the market is 8% in the current scenario because this market is highly volatile and hence I would be trying to find the fair intrinsic value of the company through-

P0= D1/(ke-g)

= 80/(8%-5%)

= 2666

The current value per share for the Reliance is almost 2100, and I would be trying to buy this share, according to this intrinsic value achieved by me.

When the intrinsic value which has been found out is lesser than the current price of the share, then one should be trying to sell the share, and if the intrinsic value is higher than the current price of these share then, it will mean that the share is undervalued and we should be buying it, and hence in this case we will be buying the share.

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