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Explain the impacts of dividend growth rate

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Question 1 - A company has issued 7 million ordinary shares. The company has just paid a dividend of $3.9 million. That dividend is expected to grow at a rate of 26 percent per annum for the next three years, then at a rate of 14 percent in the 4th year and at a rate of 4.84 percent per annum forever after that. Assuming a required rate of return of 13.93 percent, calculate the current market price of the share. Explain the impacts of dividend growth rate in the share valuation.

Question 2 - A bond with 22-year maturity was issued 3 years ago. Face value of this 8.73% quarterly coupon paying bond is $3,000. Analysts find that the current yield to maturity of this bond is 12.97 percent. Show your workings and find the value of this bond. Compare this value against the face value of the bond and write your comment to explain the difference, if any.

Reference no: EM133134365

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