BASIC VALUATION MODEL
The value of an asset/security is the present/discounted value of all future cash flows (returns) associated with it over the relevant/specified period. The expected returns (cash inflows) are discounted, using the required return commensurate with the risk of the asset as the appropriate discount rate. Symbolically,
where F= value of the asset/security at time zero.(t = 0)
A1 = cash flow streams expected at the end of year 1.
k = appropriate required/capitalization/discount rate
Alternatively, if the expected cash flow is a mixed stream