What is the fair price of arcardes preference share

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Question 1: Arcarde Ltd issues both ordinary shares and preference shares to raise capital, in which 500,000 ordinary shares have been issued at the price of $10 and 100,000 preference shares with a par value of $100.

Question 1a. Company promises to pay an annual dividend rate of 6.5% per share for its preference shares. If similar investment has a rate of return of 10% p.a, what is the fair price of Arcarde's preference share?

Question 1b. Company also plans to pay dividend for its ordinary shares as follow: Y1 (next year): $0.8; Y2: $1; Y3: $1, after year 3, the dividend will growth at the rate of 3% and company's rate of return is currently 9%, what should be the fair price of the ordinary share?

Reference no: EM132493171

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