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How to Value Shares and Outperform the Market by Glenn Martin

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15. Evaluating Fixed-Rate, Five-Year Cash Investments

You can use the System to assess whether, at a given point in time, a five-year fixed-rate pound sterling cash investment is likely to be more or less profitable than a five-year equity investment. At the time of writing this facility is especially relevant as cash interest rates are very low and private individuals are looking at alternative types of investment. This technique is best explained by way of an example.

Basic rate taxpayers

Let’s say that you have performed a valuation of the FTSE100 on 13 August 2010 as shown in Figure 15.1. Note that the real dividend growth rate has been assumed to be 0% because of the very depressed economic conditions.

Let’s now assume that you can ...

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