You are a financial analyst for Guidance Investment Sdn Bhd, and you are looking for undervalued securities. After searching the market, you identify Stock A, Stock B and Stock C as potential purchases. Stock A is currently selling at RM100 with an expected dividend of RM 6 and constant growth rate of 5%, while Stock B is a preferred stock, currently selling at RM 60 with a RM5 dividend paid each year, and Stock C with a current stock price of RM78, annual dividend of RM5 and it is expected that the dividend will grow at 4% in the coming two years and then increase by 5% per year thereafter. Answer the following questions on the basis that you believe the required rate of return for three stocks should be 10%:

• How much would you pay for Stock A?
• How much would you pay for Stock B?
• How much would you pay for Stock C?
• Which security is undervalued? Why?