You are a financial analyst of Elite Investment Company, and you are looking for undervalued

securities. After searching the market, you identify Stock A and Stock B as potential purchase.

Stock A is currently selling at Tk. 100 with an expected dividend of Tk. 7 and constant growth

rate of 5%, while Stock B is a preferred stock, currently selling at Tk. 90 with a Tk. 7.5

dividend paid each year. Answer the following question on the basis of your belief that the

required rate of return for both stocks should be 10%.

(i) How much would you pay for the stock A?

(ii) How much would you pay for the stock B?

(iii) Which security is undervalued?