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Category: Level I Equity
Dividend Discount Models
A time-honored method to determine the value of an investment is to discount to the present all of the investment’s (expected) future cash flows, and tot up those present values. It’s a method we use commonly when valuing bonds, and when valuing projects in which a company is considering investing (e.g., whether or not to…
Free Cash Flow to Equity (FCFE)
The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here). There are several types of (and, consequently, definitions for) free cash flow. In this article, I’ll describe one of those: free…
Free Cash Flow to the Firm (FCFF)
The idea of free cash flow is fairly straightforward: it’s cash flow that a company may use in any way it chooses (within reason, of course; for example, we’ll consider only legal uses here). There are several types of (and, consequently, definitions for) free cash flow. In this article, I’ll describe one of those: free…
Equity Indices
An equity index is nothing more nor less than a hypothetical stock portfolio. The index pretends to invest in a bunch of stocks, and tracks their performance over time. It’s the sort of thing that you may have done in a high school economics or history class. I did, at least. I don’t intend to…
Margin Call Price
The price at which you will receive a margin call on a long position in a stock is given by: \[margin\ call\ price\ =\ P_0\left(\frac{1\ –\ initial\ margin}{1\ –\ maintenance\ margin}\right)\] where: \(P_0\): initial price of the stock The price at which you will receive a margin call on a short position in a stock…