How much is the stock worth today

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Reference no: EM132941838

A non-callable bond has another 14 years to maturity. It carries a 6.3% annual coupon, and a RM 1000 par value. An investor plans to buy and hold it for only four years. The required return of this investor is 5.2% per annum. The yield curve data indicates that the market expects that in four years, the yield to maturity on a 10-year bond with similar risk will be 6.7%

A company has been growing at a fast rate of 35% per year recently and this growth rate is expected to last for another two years. Thereafter, the growth rate is expected to decline to a sustainable rate of 5%)

Problem a: If the most recent dividend paid is RM1.20 and required rate of return is 12%, how much is the stock worth today?

Problem b: Based on the calculation in (a), would you buy the share if the stock is selling at RM25 today? Is the share overvalued or undervalued?

Problem c: Briefly discuss the limitations of Constant Growth Model in the valuation of stocks.)

Reference no: EM132941838

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