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1. You are interested to invest some money in the stock market, after careful research you have short-listed Stock Z and Stock X as your

1. You are interested to invest some money in the stock market, after careful research you have short-listed Stock Z and Stock X as your potential purchases. Stock Z is currently selling at $100 with an expected dividend of $10 and a constant growth rate of 5%, while Stock X is a preferred stock, currently selling at $60 with a $5 dividend paid each year. The required rate of return for both stocks is 10%.

a) How much would you pay for stocks Z? (1 mark)

b) How much would you pay for stocks X? (1 mark)

c) Which one would you choose and why? (1 mark)

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