Question
An ordinary share that is expected to pay a dividend of 5 next year with dividend growth expected to be 3% per annum thereafter. A
An ordinary share that is expected to pay a dividend of 5 next year with dividend growth expected to be 3% per annum thereafter.
A corporate bond with an annual coupon rate of 5%, par value of 100, and maturity in 4 years' time. If the required return on similar US equities is 10% and on similar US bonds is 5%, calculate the value of the US stock and the US bond.
I have calculated the the value of the U.S stock to be 71.43 and the US bond to be 100.03.
I just don't understand the mock exam follow up question; Assuming an annual discount rate, what is the duration of the corporate bond?
Any help would be greatly appreciated!
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