Calculation of the implied growth duration of various companies and decision making.
You are given the following information about two computer software firms and the S&P Industrials:
|
|
Company A
|
Company B
|
S P industrials
|
|
P/E ratios
|
30
|
27
|
18
|
|
Expected growth
|
0.18
|
0.15
|
0.07
|
|
Dividend yield
|
0
|
0.01
|
0.02
|
a). Compute the growth duration of each company stock relative to the S&P Industrials.
b). Compute the growth duration of Company A relative to Company B.
c). Given these growth durations, what determines your investment decision?