Reference no: EM132968101

Question - Jayden Baker has recently inherited money which, after careful consideration, he decided to invest, in order to generate returns. He has done thorough research on various industries, potential investments, and their future prospects. You have been provided with the following information regarding the financial instruments Jayden is considering investing in: 14% Non-cumulative non-redeemable preferences shares: Buying 20, 14% non-cumulative non-redeemable preference shares in Abba Ltd. which has a par value of R100 each. Abba Ltd. has not declared dividends in the current year and, from his research and analysis in Abba Ltd.'s prospectus, is only estimating to start declaring dividends again in 4 years' time. Dividends are paid annually in arrears. Similar risk-profile preference shares are quoting yields of 13% per year. Ordinary shares: 25 Ordinary shares in Tango Ltd. Dividends are payable annually and the recent dividend declared was 80 cents per share. Tango is a relatively new established company in the technology sector, but has good growth projections. In the past 5 years, the company has grown at a rate of 10%, which is expected to increase to 13% for the next 3 years before settling at 4% for the years thereafter. The long-term South African government bonds are yielding returns of 5% while the return on the market is 12%. Tango Ltd.'s beta is 1.1. Corporate bond Purchase a 5-year corporate bond in Echo Ltd with an issue price of R90 each. For the first 3 years the interest rate will be fixed at an annual coupon interest rate of 11.5%, whereafter it will change to a floating rate of 600 basis points above the JIBAR. The JIBAR is expected to be 4% in year 4 and 4.3% in year 5 , respectively. Similar bonds have a market yield of 11% annually

Required -

1) Calculate the price Jayden should reasonably be willing to pay for the 14% non-cumulative non-redeemable preference shares.

2) Calculate the current worth of one ordinary share in Tango Ltd.

3) Calculate the price Jayden should reasonably be willing to pay for a corporate bond.