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Hello sir
Could you please help me clarify sth from q4 june 2013 test?
Part a)
Why we calculate the PV at the end of second year and then discount it for 2 years?
Wouldn’t be correct to calculate PV at the end of the third year 2.5*(1.04)/(0.09-0.04)=$52m and then discount it for 3 years which would give a PV of $40.14m (52m*0.772)many thanks in advance
That would work, provided you also added on the PV of the dividend received in 3 years time as well.
What you are doing is only looking at the dividends from time 4 onwards.
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