MGT201 - Financial Management

@zaasmi said in Lecture # 2 Discussion:

What is the difference between fair value and intrinsic value?

Answer:
Intrinsic value is an anticipated value that is based on the fundamental analysis, the amount a rational investor is willing to pay for a security at a given level of risk. This fundamental or intrinsic value is based on discounted value of future cash flows attached with that security.

@zaasmi said in MGT502 Handouts:

please explain intrinsic value with example

Answer: Intrinsic value/face value/par value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value.

Face value / par value refers to the stated value of the instrument at issuance. Market value, on the other hand, refers to the actual price investors pay for these securities. The par value is determined by the issuing entity and remains unchanged over time, but the market value is highly fluid and is dedicated by the psychology of the marketplace.

So par value of shares is the original value or the value that is determined at the time of issuance of shares while market value is the recent market price of shares in which shares can be bought/purchase.

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