Question

Why would two investors with different holding periods but the same expectations and required return for a company, arrive at the same intrinsic value of a common share of a company?

Answer 1

first of all lets underastand the meaning of the Intrinstic value of any security. the intristic value is the present value of the future cashflow on that particular security for example for the equity shares the present value of the share is equal to the present value of the dividend on that particular security as the equity is the security that is having an infinite maturity so the only cashflow reciened on equirt share is the dividend on such equityu shares what if we sell out that shares that price does not include nin the intrinstic value calculation because the sellibg price of share is the income for one investor while the investment for the another so the overall it does not have any impact on the total cashflow of the firm. so now its well understood that the intrinstic value of the equity share is the present value of the dividend on that share and does not consider the selling value of that stock so that means to calculate the present value of the equity we will calculate the present value of the future dividend and that dividend expectations will be equal for the investor having any horizon while the calculation of the value of equity share we are using the below mention formula;-

value of stock = Dividend/interest rate

the simply says the above formula is the present valuue perpatuity. so this valuation formula does not consider the investment horizon at all so there is no chance of intrinstic value is impact by the horizon of investment.

hence we can conclude that two investors with different holding periods will have same intrinstic value because the valuation formula does not consider the investment horizon at all.