(a) Compare and contrast the characteristics of ordinary shares, preference shares corporate bonds.
(b) Consider the following two financial assets:
(1) an ordinary share has just paid a dividend of £3 with dividend growth expected to be 2.5% per annum thereafter;
(2) a corporate bond with an annual coupon rate of 3%, par (face) value of £100, and maturity in 4 years time. If the required return on similar US equities is 8% and on similar US bonds is 2.5%, calculate the value of the US stock and the US bond.
(C) Using the data given above and assuming an annual discount rate, calculate the duration of the corporate bond.
(d) Explain why the concept of duration is important for bond investors.
(e) Discuss the assumptions underlying the Gordon growth model
