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There are only 2 investment options: share A or B. Company A has a current share price of $5 and is expected to pay an
There are only 2 investment options: share A or B. Company A has a current share price of $5 and is expected to pay an annual dividend of $0.40 next year. The dividend is expected to remain at this level forever. Company B recently paid a dividend of $1.4 and this dividend is expected to grow at 3% p.a. forever. What should the price of Company B's shares be if their risk levels and the risk/returns trade-off of the two companies are the same? (rounded to 2 decimal points)
a. $28.84
b. $24.56
c. $32.90
d. $28.00
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