(b) Consider the following two financial assets: (1) an ordinary share that is expected to pay a dividend of £2 next year with dividend growth expected to be 4% per annum thereafter; (ii) a corporate bond with an annual coupon rate of 7%, par (face) value of £1000, and maturity of 5 years. If the required return on similar UK equities is 10% and on similar UK bonds is 6%, calculate the value of the UK stock and the UK bond. (c) Explain the duration of a bond. Using the data given above (in b), calculate the duration of the corporate bond.
(b) Consider the following two financial assets: (1) an ordinary share that is expected to pay a dividend of £2 next year with dividend growth expected to be 4% per annum thereafter; (ii) a corporate bond with an annual coupon rate of 7%, par (face) value of £1000, and maturity of 5 years. If the required return on similar UK equities is 10% and on similar UK bonds is 6%, calculate the value of the UK stock and the UK bond. (c) Explain the duration of a bond. Using the data given above (in b), calculate the duration of the corporate bond.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:(b) Consider the following two financial assets:
(i) an ordinary share that is expected to pay a dividend of £2 next year with dividend growth
expected to be 4% per annum thereafter;
(ii) a corporate bond with an annual coupon rate of 7%, par (face) value of £1000, and maturity of 5
years.
If the required return on similar UK equities is 10% and on similar UK bonds is 6%, calculate the value
of the UK stock and the UK bond.
(c) Explain the duration of a bond. Using the data given above (in b), calculate the duration of the
corporate bond.
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What are the calculations at the end of bii) and c) as it cuts off and I am unable to see it?
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