Folks
I am attaching picture of curriculum example Reading 38 Example 5 part 2.
This statement ‘Intrinsic Value of Security is Independent of Inventor’s holding period?’ got me confused because if we consider dcf models to calculate intrinsic value, won’t our value be effected? or he asked something which I failed to understand?
It’s not a well written question.
They’re asking about the investors’ estimates of the intrinsic value, not about the intrinsic value itself.
The (actual) intrinsic value will be the same – the asset doesn’t know how long you intend to hold it – but the estimates may be very different (for a variety of reasons, holding period length being only one of them).
How can intrinsic value be the same? e.g dividend received in perpetuity should have different intrinsic value than for dividend for limited time horizon? no?
I mean the more the discounting the lesser will be the PV?
I hope I am making sense in asking the right question
No.
If you hold it for a finite time you’ll sell it at the end; the value at the end will be the present value of the remaining (perpetual) cash flows.
Intrinsic value With same required rate of return and different holding period are similar intrinsic value
