Munkhbayar Rinchin Rentsendorj Yondon Batka Ayush mates , Wikipedia says One possible approach, and one that is gaining increasing attention, is the use of replicating portfolios or hedge portfolios. The theory is that we can choose a portfolio of assets (fixed interest bonds, zero coupon bonds, index-linked bonds, etc.) whose cashflows are identical to the magnitude and the timing of the cashflows to be valued. For example, suppose your cash flows over a 7-year period are, respectively, $2, $2, $2, $50, $2, $2, $102. You could buy a $100 seven-year bond with a 2% dividend, and a four-year zero-coupon bond with a maturity value of 48. The market price of those two instruments (that is, the cost of buying this simple replicating portfolio) might be $145 - and therefore the value of the cashflows is also taken to be $145 (as opposed to the face value of the total cash flows at the conclusion of the 7 years, which is $162.) It should be clear that the advantages of a replicating portfolio approach include: • an arbitrary discount rate is not required • the term structure of interest rates is automatically taken into account. My question then - does it mean that one can value an equity by replicating portfolio approach, reason because discount rate at valuing Mongolian equities is arbitrary in my opinion, what it is 8%? en.wikipedia.org/wiki/Replicating_portfolio
Posted on: Tue, 24 Jun 2014 17:48:15 +0000