Assignment 2

# Assignment 2 -...

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You have finally saved \$10,000 and are ready to make your first investment. You have the three foll A CBS bond with a par value of \$1,000, an interest rate of 7.625 percent, and a. Calculate the value of each investment based on your required rate of return. b. Which investment would you select? Why? c. d. What required rates of return would make you indifferent to all three options? MINI-CASE 1) Bond: bond= (\$1,000.00) i= 7.625% n= 10 required rate= 6.0% selling price = \$986.00 Value= (\$989.86) Preferred Stock: par= \$50.00 selling price= \$39.00 Value(Vps)=dividend/required rate  dividend= \$2.8125 required rate= 7.0% Value= \$40.18 Alabama Power Company preferred stock with a \$50 par value and a dividend per share. Emerson Electric common stock that is selling for \$80 with a par value of \$5.  earnings per share have increased from \$2.40 to \$4.48 in the past 5 years. An Your required rates of return for these investments are 6 percent for the bond, 7 percent for the pref this information, answer the following questions. Assume Emerson Electric’s managers expect an earnings downturn and a res your answers to parts 1 and 2?

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Common Stock: par= \$5.00 dividend= \$2.10 EPS \$2.40 EPS in five years \$4.48 # of years growth 5 EPS growth= selling price= \$80.00 required rate= 15.0% Value= \$14.00 2) I would select the preferred stock because one makes the most money using that option. 3)
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## This note was uploaded on 09/15/2011 for the course BUSINESS BUS 401 taught by Professor Dawnmckinley during the Fall '10 term at Ashford University.

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Assignment 2 -...

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