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Junior just received his annual bonus and is looking to invest it in one of two...

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Finance

Junior just received his annual bonus and is looking to investit in one of two potential investments. Junior is considering a10-year 9% coupon bond issued by HomeCo that is currently sellingfor $1,024.51. His other option is to buy stock in Residential Inc.Residential just issued a $1.2 dividend and expects to grow at 4%.Residential’s current stock price is $42.30. If both investmentsare fairly priced and Junior intends to hold the investmentindefinitely, which offers a higher return?

The stock, 6.84% > 4.31%

The bond, 9.00% > 2.95%

The bond, 8.63% > 6.95%

The stock, 4.31% > 4.00%

Answer & Explanation Solved by verified expert
4.4 Ratings (972 Votes)
Calculating Return of bondNo of years to maturity 10 years Coupon rate 9 Parvalue 1000 Current selling price 102451Coupon payment Coupon rate x par value 9 x 1000 90We find    See Answer
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