The concept of market efficiency underpins almost all financial theory and decision models. when financial markets are efficient, the price of a security such as a share of a particular corporation's common stock-should be the present value estimate of the firms expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).

The concept of market efficiency underpins almost all financial theory and decision models. when financial markets are efficient, the price of a security such as a share of a particular corporation's common stock-should be Equal To  the present value estimate of the firms expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).

Explanation:

Intrinsic Value of a stock:- The intrinsic value of a stock can be defined as a  price for the stock based only  on the internal  factors of the company.

It eliminates the external factors that  involved in market prices.

Another most  widely used method is the discounted cash flow (DCF) method. This method uses cash flows from the business to come up with a value.

The calculation of intrinsic value formula of stock is done by dividing the value of the business by the number of outstanding shares of the company in the market.

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