Question: 11. a. Compare and contrast the methods used in the pricing of bonds and common stocks. (13 marks) b. Consider the following two financial assets:

11. a. Compare and contrast the methods used in the pricing of bonds and common stocks. (13 marks) b. Consider the following two financial assets: (1) a stock is expected to pay a dividend of $150 next year with dividend growth expected to be 2.5% per annum thereafter; (2) a corporate bond with an annual coupon rate of 5%, par (face) value of $1000, and maturity in 2 years time. If the required return on similar equities is 10% and on similar bonds is 7%, calculate the value the stock and of the bond. (12 marks) [Total: 25 marks

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