2) Consider the following two financial assets

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2) Consider the following two financial assets. a) A US stock that is expected to pay a dividend of $50 next year, $60 in year 2, $70 in year 3, with dividend growth expected to be 6% per annum thereafter. Assume similar US equities offer a rate of return of 8%. Calculate the fair price of US stock. (3 marks) b) A US corporate bond with an annual coupon rate of 5%, par (face) value of $1000 and maturity in 3 years' time. Coupons are paid semiannually. If the required return on similar US bonds is 8% (per annum), calculate the value of the US bond. (3 marks) c) A zero coupon bond with $1000 face value & maturity of 5 years has yield to maturity of 5 years. What is the fair price of the zero ? (1 mark) a. An investor is considering investing in one more of the following types of assets: corporate bonds, govt bonds, preferred stocks and common stocks. Discuss the relative returns, risks and ownership rights and benefits or these assets. (8 marks) b. What are inherent limitations in valuing bonds and shares ? Explain (2 marks) Why are govt. bonds considered as risk free securities ? (1 marks) Are they actually risk free ? Justify your answers ? (2 marks) C. Derive the Dividend discount model of share valuation. (5 marks)