a. You are looking for two debentures that are identical in every way except for their coupons and, of course, their prices. Both have 12 years to maturity. The first debenture has 10 per cent coupon rate and sells for $93.508. A little exercise using either excel program [IRR(A1:A13)] or trial and error reveals that the market yield is actually 11 per cent. The second has a 12 per cent coupon rate. Required: What do you think the second debenture would be sell for? Indicate as to whether it would be selling at a discount or premium.
b. Assume on the recovery of COVID-19 in Australia G Ltd will be growing at a phenomenal rate of 10 per cent. It is also believed that this growth rate will be last for three more years and drop to 5.5 percent per year and remains this rate indefinitely. As well, assume that total unfranked dividend just paid were $20 million for 10 million shares.
Required: Based on non-constant growth, calculate the value of shares today assuming the required rate of return is 12 percent. What would be the total value of equity and price for each share today?