The current market price for shares in company abc is 550


The current market price for shares in company ABC is 550 pence. Spot rates from the yield curve for year i are: r1 = 0.04 (4%); r2 = 0.05 (5%) rj = 0.06 (6%) (for j > 2) and the market risk premium (rp) on ABC shares is 4% (0.04) over the risk-free rate. Current dividends are 12 pence per share and at the end of years 1, 2 and 3 are expected to be 10 pence, 12 pence and 14 pence. If dividends are expected to grow at 5% per annum after year 3:, a. Calculate the fair value for the share b. Would you advise an investor to buy the share

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Financial Management: The current market price for shares in company abc is 550
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