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Calculate the present value of each security

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Reference no: EM132578902

Consider the following 4 securities:

  1. Bond A with a face value of £100 pays a coupon of 7% for 5years. The reported yield to maturity is 5%
  2. Stock B is expected to provide a dividend of £5 per share forever
  3. Stock C is expected to pay a dividend of £3 next year. Thereafter, dividend growth is expected to be 5% a year for 4 years and zero thereafter.
  4. Stock D is expected to pay a dividend of £2 next year. Thereafter, dividend growth is expected to be 4% a year forever

Question 1: The market capitalization rate for each stock is 11%, calculate the present value of each security, and answer which security is the most valuable?

Reference no: EM132578902

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