Today @Nick Correa and I decided to explore the most important question of all in finance: how does one value a security? Sure, we all know what the price is (just look it up...) but what is the true value of something?
To answer this question, we take a look at a few clips from my recent interview with Professor Aswath Damodaran, who is the world's leading authority on the subject. Charts below. We hope you enjoy!
Formula for a Discounted Cash Flow (DCF) Model (It's the DCF, stupid...)
Equity Risk Premium over time:
Equity risk premium (red bar) PLUS the risk free rate (blue bar) = the discount rate. This is the rate at which future cash flows are discounted to the present.
Thanks so much @Farrell Murphy and @Weston Nakamura - and, of course, the one and only @Nick Correa !
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