Utilizing risk adjusted discount rate

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Theoretically, the price of stock should reflect the net present value of the future flow of dividends utilizing a risk adjusted discount rate. Nevertheless, certain stocks such as Google have phenomenal price to earnings ratios. Discuss why the price-to-earnings ratios are so high and what the justification may be for their stock prices.

Comment on:

High stock prices reflect higher earnings growth.

Some believe the stock prices are unrealistic and rely on the bigger fool theory.

Recall the tech bubble bursting after March 2000.

Reference no: EM131543663

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