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An ordinary share is expected to pay a dividend of $2 in one year, $5 in 2 years and $6 in 3 years. The annual
An ordinary share is expected to pay a dividend of $2 in one year, $5 in 2 years and $6 in 3 years. The annual dividend then remains unchanged at $6 until the end of year 10. From the end of year 10, the dividend will grow at 4% p.a. forever. Which of the following can be used to find the share price today if the rate of return is 15%? (There may be more than one correct answer. You will lose marks by choosing a wrong answer. The minimum mark for the question is zero.) a. Select one or more: 2 5 6 6(1.04) + + (1 - 1.15-8) + 1.15 1.152.0.15 0.15-0.04 2 5 6 b. 6 + + (1 - 1.15-7)(1.15)-2 + (1.15-9 1.15 1.152 0.15 0.15-0.04 2 5 6(1.04) + - 1.15-6) (1.15)-2 + 1.15 (1.15)-10 0.15 -0.04 2 5 6 6(1.04) d. 1.15 1.152 0.15 (1.15)-10 e. None of the options can be used to find the share price today. 2 5 6 f. 6(1.04) + (1 - 1.15-8)(1.15)-3 + (1.15)-11 1.15 1.152.0.15 0.15 -0.04 1.152 * 0.15(1 - (1 - 1.15-7)(1.15)-2 + 0.15 - 0.04 +
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