Discount Rate

Discount Rate It is the required rate of return on a particular class of equity shares, i.e., a risk – adjusted interest rate, a factor in calculating the present value of a share. The present value equals the dividends per share divided by the discount rate less growth rate. Dividend Rs 5, risk – adjusted discount rate 10%, growth rate 2%. Therefore, Rs 5 divided by 08 (10 – 02) = Rs 62.50. If the risk of investing in the company increase and the dividend and growth rates do not change, the price of the share will fall.

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