The concept of market efficiency underpins almost all financial theory and decision models. when financial markets are efficient, the price of a security such as a share of a particular corporation's common stock-should be_________ the present value estimate of the firms expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).

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10-03-2020
Business

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The concept of market efficiency underpins almost all financial theory and decision models. when financial markets are efficient, the price of a security such as a share of a particular corporation's common stock-should be_________ the present value estimate of the firms expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).

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The concept of market efficiency underpins almost all financial theory and decision models. when financial markets are efficient, the price of a security such as a share of a particular corporation's common stock-should be Equal To the present value estimate of the firms expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).

Explanation:

Intrinsic Value of a stock:- The intrinsic value of a stock can be defined as a price for the stock based only on the internal factors of the company.

It eliminates the external factors that involved in market prices.

Another most widely used method is the discounted cash flow (DCF) method. This method uses cash flows from the business to come up with a value.

The calculation of intrinsic value formula of stock is done by dividing the value of the business by the number of outstanding shares of the company in the market.