View the step-by-step solution to:

# A CBS bond with a par value of \$1,000, an interest rate of 7.625 percent, and a maturity of 10 years. The bond is selling for \$986.

A CBS bond with a par value of \$1,000, an interest rate of 7.625 percent, and a maturity of 10 years. The bond is selling for \$986.

Alabama Power Company preferred stock with a \$50 par value and a dividend of \$2.8125 per year. The stock is currently trading at \$39 per share.

Emerson Electric common stock that is selling for \$80 with a par value of \$5. This stock recently paid a \$2.10 dividend, and the firm’s earnings per share have increased from \$2.40 to \$4.48 in the past 5 years. An equivalent amount of growth in the dividend is expected.

Your required rates of return 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:

Calculate the value of each investment based on your required rate of return.

Which investment would you select and why?

Assume Emerson Electric’s managers expect an earnings downturn and a resulting decrease in growth of 3 percent. How does this affect your answers to part 1 and 2?

What required rates of return would make you indifferent to all three options?

Dear Student, Please check the attached solutions of... View the full answer

A CBS bond with a par value of \$1,000, an interest rate of 7.625 percent, and a maturity of
10 years. The bond is selling for \$986.
Alabama Power Company preferred stock with a \$50 par value and a...

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents