Equity - Residual Chaper CFAI Problem # 15

malbec

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Did i read the questions incorrectly to assume the “premium over BV was refering to Ending BV x (Premium) ; Premium = (1+.20)

Thanks!

defour44

and the 20.14 Book value is discounted above in the table to get the value of 2.51 …

yodacaia

Thank you kindly!

sdada

Key here is Finite horizon ri model
it assumes that the terminal value is a premium over book value.  The premium is (Pt - Bt); Pt being the price at time T,  since the problem already says that the premium is 20% of BookV at time T, then it means Pt-Bt = 0.2*Bt