XYZ company paid its sharcholders a SO.3 annual dividend last year. The company expects dividends to grow at a rate of 5% p.a. for the next four years. After that, dividends are expected to grow at a constant rate of 3% p.a. indefinitely. Your required rate of retum is 10% p.a.

a) What is the fair value of these shares to you? Show your calculations.

b) Discuss if you would invest in the ordinary shares of XYZ if the current market price is $5.45.