You have finally saved? $10,000 and are ready to make your first investment. You have the...

90.2K

Verified Solution

Question

Finance

You have finally saved? $10,000 and are ready to make your firstinvestment. You have the three following alternatives for investingthat? money:
A Microsoft bond with a par value of $1,000 that pays 9.25percent on its par value in? interest, sells for 1,281.81?, andmatures in 9 years.
Southwest Bancorp preferred stock paying a dividend of ?$2.17and selling for ?$23.74.
Emerson Electric common stock selling for ?$63.97, with a parvalue of? $5. The stock recently paid a ?$1.68 ?dividend, and the?firm's earnings per share has increased from ?$2.36 to ?$3.78 inthe past 5 years. The firm expects to grow at the same rate for theforeseeable future.
Your required rates of return for these investments are 4.00percent for the? bond,10.50 percent for the preferred? stock, and13.00 percent for the common stock. Using this? information, answerthe following questions.
a. Calculate the value of each investment based on your requiredrate of return.
b. Which investment would you? select? Why?
c. Assume Emerson? Electric's managers expect an earnings togrew at 1 percent above the historical growth rate. How does thisaffect your answers to parts ?(a?) and ?(b?)?
d. What required rates of return would make you indifferent toall three? options?

Answer & Explanation Solved by verified expert

4.1 Ratings (466 Votes)

a Value of the Microsoft bond FV par value 1000 PMT coupon payment coupon ratepar value 9251000 925 N 9 rate your required return from the bond 4 CPT PV Value of the bond 139035 Value of Southwest Bancorp preferred stock annual dividendrequired return 217105 2067 Value of Emerson Electric common stock next dividendrequired return growth rate growth rate over 5 years 3782361 6017 growth rater per See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

You have finally saved? $10,000 and are ready to make your firstinvestment. You have the three following alternatives for investingthat? money:A Microsoft bond with a par value of $1,000 that pays 9.25percent on its par value in? interest, sells for 1,281.81?, andmatures in 9 years.Southwest Bancorp preferred stock paying a dividend of ?$2.17and selling for ?$23.74.Emerson Electric common stock selling for ?$63.97, with a parvalue of? $5. The stock recently paid a ?$1.68 ?dividend, and the?firm's earnings per share has increased from ?$2.36 to ?$3.78 inthe past 5 years. The firm expects to grow at the same rate for theforeseeable future.Your required rates of return for these investments are 4.00percent for the? bond,10.50 percent for the preferred? stock, and13.00 percent for the common stock. Using this? information, answerthe following questions.a. Calculate the value of each investment based on your requiredrate of return.b. Which investment would you? select? Why?c. Assume Emerson? Electric's managers expect an earnings togrew at 1 percent above the historical growth rate. How does thisaffect your answers to parts ?(a?) and ?(b?)?d. What required rates of return would make you indifferent toall three? options?