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VALUATION (BONDS AND STOCK)

VALUATION Concepts 1 VALUATION ( bonds and stock ) The general concept of VALUATION is very simple the current value of any asset is the present value of the future cash flows it is expected to generate. It makes sense that you are willing to pay (invest) some amount today to receive future benefits (cash flows). As a result, the market price of an asset is the amount you must pay today to receive the cash flows the asset is expected to generate in the future. You should not be willing to pay the asset s market price if you can create the same future cash flow stream yourself by investing a lower amount in other investments for example, a savings account.

Valuation Concepts – 1 VALUATION (BONDS AND STOCK) The general concept of valuation is very simple—the current value of any asset is the present value of the future cash flows it is expected to generate. It makes sense that you are willing to pay (invest) some amount today to receive future benefits (cash flows).

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