BPP revision kit Q 225 MCQ

It would seem that you have not watched my free lectures, because I work through (and explain) a very similar example. It is very popular in the exam.

However, the BPP answer is confusing and has been mistyped as well (even though the final answer is correct!).

The PV of the dividend at time 2 is 0.25 x 0.826 = 0.2065
The PV of the dividend at time 3 is 0.50 x 0.751 = 0.3755

You then have a growing dividend and we use the dividend valuation formula.
Had it been starting at time 1, with a current dividend at time 0 of 0.50, then the formula would give:
(0.50 x 1.03)/(0.10 – 0.03) = 7.3571

However, the growing dividend starts at time 4, with a dividend at time 3 of 0.50. Everything exactly the same except 3 years later.
Therefore the answer of 7.3571 is a PV 3 years later as well, and needs discounting for 3 year.
7.3571 x 0.751 = 5.5252

Therefore the MV = total PV = 0.2065 + 0.3755 + 5.5252 = 6.1072 ($6.11)

The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.

You are welcome 🙂