Stocks and Bonds Name: Institution: Date: Part One Introduction The Dividend Discount Model is the most elegant and relatively simple way for individual investors to estimate the price they should be willing to pay for a stock, or determine whether a given stock is overvalued or undervalued. The Dividend discount model is based on the premise that the price of a stock should be equivalent to the sum of its current and future cash flow, after taking account of the time value of money. The Dividend Model formula is based on a basic valuation model that is a foundation for many other investing techniques. It combines the expected future cash flow and the time value of money. That is, Stock Price = the sum of the present value of all future dividends. Hypothetical Ex

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