You have finally saved $10,000 and are ready to make your first investment. You have the following threealternatives for investing that money:• Capital Cities ABC, Inc., bonds, which have a par value of $1,000 and a coupon interest rate of 8.75percent, are selling for $1,314 and mature in 12 years.• Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50.• Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend, and thefirm's dividend growth rate of last five years is 4 %. The firm expects to grow at the same rate for theforeseeable future.Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferredstock, and 15 percent for the common stock.Using this information, answer the following questions.a. Calculate the value of each investment based on your required rate of return.b. Which investment would you select? Why?

Bond: Face Value = 1000 Coupon = Coupon Rate × Face Value = 8.75%×1000 = 87.5 N = 12 Price of bond =…

You have finally saved $10,000 and are ready to make your first investment. You have the following three alternatives for investing that money: • Capital Cities ABCC, Inc., bonds, which have a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for S1,314 and mature in 12 years. • Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50. • Emerson Electric common stock is selling for $36.75. The stock recently paid a S1.32 dividend, and the firm's dividend growth rate of last five years is 4 %. The firm expects to grow at the same rate for the foreseeable future. Your required rates of retum for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions. a. Calculate the value of each investment based on your required rate of return. b. Which investment would you select? Why?

You have finally saved $10,000 and are ready to make your first investment. You have the following three alternatives for investing that money: • Capital Cities ABCC, Inc., bonds, which have a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for S1,314 and mature in 12 years. • Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50. • Emerson Electric common stock is selling for $36.75. The stock recently paid a S1.32 dividend, and the firm's dividend growth rate of last five years is 4 %. The firm expects to grow at the same rate for the foreseeable future. Your required rates of retum for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions. a. Calculate the value of each investment based on your required rate of return. b. Which investment would you select? Why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 9P

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