The Valuation Principle states that the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock which the investor will receive.

Question

Quizplus · Accepted Answer

The Valuation Principle is based on the concept of discounted cash flows, where the value of an investment is determined by calculating the PV of the expected future cash flows. In the case of a stock, this includes both the dividends paid over time as well as the expected sale price of the stock at some point in the future. Therefore, the statement "the value of a stock is equal to the present value (PV) of both the dividends and future sale price of that stock" is true.

The Valuation Principle States That the Value of a Stock