Question 1 (a) BLUE Plc just paid 5 p as a cash dividend. BLUE is expected to pay 30% of its earnings as cash dividend. The growth rate of dividend is expected to last forever. The required rate of return for BLUE's shareholders is 6%. Calculate the share price of BLUE in THREE years (P3). Full calculation workout is expected. [7 marks] (b) The information for TWO HSBC bonds is listed below. The face values of both bonds are 100. If you expect Bank of England would increase the interest rate to combat inflation very soon, which bond you would like to recommend for investing? Explain your answer. [6 marks] Issuer Coupon Rate Bond Price HSBC Bank --A 6.50% Date to Maturity 7 July 2023 22 August 2033 114.18 HSBC Bank --B 5.38% 133.35 (c) Evaluate the argument that IPO is the best option for a firm to raise equity capital. [12 marks] [Total 25 marks] Question 1 (a) BLUE Plc just paid 5 p as a cash dividend. BLUE is expected to pay 30% of its earnings as cash dividend. The growth rate of dividend is expected to last forever. The required rate of return for BLUE's shareholders is 6%. Calculate the share price of BLUE in THREE years (P3). Full calculation workout is expected. [7 marks] (b) The information for TWO HSBC bonds is listed below. The face values of both bonds are 100. If you expect Bank of England would increase the interest rate to combat inflation very soon, which bond you would like to recommend for investing? Explain your answer. [6 marks] Issuer Coupon Rate Bond Price HSBC Bank --A 6.50% Date to Maturity 7 July 2023 22 August 2033 114.18 HSBC Bank --B 5.38% 133.35 (c) Evaluate the argument that IPO is the best option for a firm to raise equity capital. [12 marks] [Total 25 marks]