In textbook chapter 4, preference shares were used as a practical example of a financial product that displays the characteristics of a perpetuity payment.

Required:

a) In order to value a preference share, we need to know the relevant discount rate. If you were asked to value a preference share for a company listed on the stock exchange, what process would you undertake to determine the appropriate discount rate / risk -adjusted required rate of return?

b) From the brief discussion in the textbook and your further research into how preference shares operate, discuss whether in fact preference shares are indeed a good example of a perpetuity payment.

c) In many states in Australia, there are rules that prevent financial products or investments being offered that operate as perpetuities. In your opinion, what are the concerns of government bodies that would seek to prevent this type of investment being offered to the public?