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9% preference shares are redeemable at a premium of 5% in 10 years time. Dividends for the current year have been paid and the preference shares in the similar risk class are currently yielding at 12% per annum. Calculate the cost of the preference shares.
The Formula is
Kp= D1/Po
The D1 is the 9%
How do i get the Po??
This is not in the syllabus for Paper F2 – it is Paper F9.
In addition, if they are redeemable then you would need to calculate the IRR.
You can find free lectures in the Paper F9 section.
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