You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate three alternative proposals financing expansion. The options are:

to issue a bond redeemable in 20 years

to issue a bond redeemable in 50 years

or to issue new shares.

The details of the proposed alternative bonds and their expected market values are as follows:

	20-year bond	50-year bond
Face Value of each bond	100	100
Nominal Interest Rate	3.5%	3.5%
Predicted market price of bond	125	85

Scylace plc has ordinary shares with a nominal value of 1 each listed on the London Stock Exchange.

The market price of 1 Scylace ordinary shares is 400p

Over the last year, Scylace has paid a dividend of 14.00p per share.

The directors are expecting the company to pay dividends of 24.75 per share over the next year and expect dividends to grow at a constant percentage rate for the foreseeable future.

Calculate the predicted yield to redemption on the 50-year bond.

Please use the following formula. The answer is 4.44. I want to understand how to calculate and apply the formula.

= + /

where = (n /) 1