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.
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.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 12P
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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.
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