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a) A share of ABC Company is being sold for Rs/- 25

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a) A share of ABC Company is being sold for Rs/- 25. The company’s most recently paid dividend was Rs/- 1.5 a share. This dividend is expected to grow at a rate of 5% for first 3 years, then at a rate of 7% for next 3 years and then at 10% indefinitely. If the required rate of return is 14%, should the share be bought at 25 or not?

b) If a bond has a par value of 1000 Rs, and has a maturity of 10 years. What should be the value of such a bond today provided a 8% coupon rate and 15% required rate of return?

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