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Unformatted text preview: 1. Influenced by three factors a. Required real rate of return (interest not adjusted for inflation) b. Inflation c. Risk premium 1. Possibility of the firm not being able to sustain growth 2. Financial risk possibility of the firm not meeting its debt service obligations Bond prices vary inversely with interest rates. Bond prices go down, interest rates go up. Semi-annual interest you have the rate and double the periods. 6% for five years or 3% for 10 interest periods. III. Preferred stock Pp = Dp/Kp $100 7.5% $7.50 / yr dividend IV. Common stock A. No growth Po = Do/Ko B. Constant growth Po = D1/(Ke-g)...
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