(12C/17B/19B etc) Multi-Stage Stock Pricing w / …

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An excerpt from Multi-Stage Stock Pricing with a Financial Calculator, Tom Arnold, CFA, CIPM, The Robins School of Business, Department of Finance, University of Richmond VA, June 5, 2020, 11 pages

                     Multi-Stage Stock Pricing with a Financial Calculator
Alexander, Arnold and Wu (2020) introduce an algorithm for multi-stage stock pricing that
uses a present value annuity structure. This algorithm is adapted for a financial calculator
by using an iterative bond pricing structure.

INTRODUCTION

          Alexander, Arnold, and Wu (AAW, 2020) generate an algorithm for pricing a stock
when there is a period of abnormal dividend growth (G₁) that lasts “N₁” periods. After the
N₁ periods, the “normal” dividend growth rate “g” is applied in perpetuity. Defining “k”
as the periodic discount rate and “D₀” as the current or most recent dividend, …
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          In this paper, we introduce an iterative bond pricing process which implements the
AAW algorithm. In section one, we demonstrate the process with a numerical example
and demonstrate that the process can be implemented on a financial calculator and in an
Excel spreadsheet. In section two, the financial calculator process is demonstrated to be
numerically consistent with the traditional calculation method and correspondingly the
AAW algorithm.
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ITERATIVE PROCESS FOR A FINANCIAL CALCULATOR
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WHY DOES THIS WORK?
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CONCLUSION
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REFERENCES:
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BEST!
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