Asholra lnfotech Ltd. is a new company. It has come up with the initial public issue. The issue price of the share is Rs. 213 and the par value is Rs. 10. Shyamulu Rao, a prospective investor, is considering investing Rs. S in Asholca lnfotech's shares. He is not sure about the returns from his investment. His required rate of return is 15 percent. Since Ashoka lnfotech is a new company, he would like to hold the shares for it) years before he sells them. As regards the dividend payment by the company, he visualises three possibilities. First, the company may reinvest all its earnings and may not pay any dividend. Second, the company may pay a constant dividend of Rs. 3. Third, the company may start with a dividend of Rs. 1 per share, which may grow at a constant rate of 1D percent. Shyamulu expects different share prices after 10 years under the three alternatives- The expected earnings per share in year one in the normal situation will be Rs. 3. Shyamulu Rao can also invest his money in bonds. A governmentowned nancial insb'tution is offering Rs. 10,0{10 face value bonds with 1year maturity at Rs. ETEU. He is also considering bonds issued by Reliable Fertiliser Company. These are 153-6, Rs. 1ooo bonds with 1'fear matun'ty. The company will redeem bonds at Rs. 11oo on maturity. Discussion Questions 1. How much would be Shyamulu's return if he invests his money in Ashoka lnfotech's shares? 2. What would be his return form the bonds of the financial institution and Reliable Fertilisers? 3. Suggest a sound investment option to Shyamulu