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Calculate the current value of xyz share

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Reference no: EM132483802

Coles Group is looking for financial investment in the securities market. Two investment options are available in different securities: Bonds and ordinary shares.

  • ABC Company is issuing bonds having 12% coupon rate. Interest is paid semiannually. The bonds have a face value of $1,000 and will mature 10 years from now.
  • XYZ Company is issuing ordinary shares and just paid a dividend of $6.50 per share. The Company Management agreed on steady growth of 12% in dividends and earnings over the foreseeable future. The required rate of return for shares of this type is 18%

Required:

Question a) Compute the current value of ABC bonds if the required rate of return is 10% annually

Question b) Calculate the current value of XYZ share

Reference no: EM132483802

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