Calculate the value of each security

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You are considering three investments. The first is a bond that is selling in the market at $1,200. The bond has a $1,000 par value, pays interest semi-annually at 10%, and is scheduled to mature in 10 years. For bonds of this risk class you believe that a 12% rate of return should be required. The second investment that you are analysing is a preference share ($100 par value) that sells for $95 and pays an annual dividend of $10. Your required rate of return for this share is 10%. The last investment is an ordinary share ($35 par value) that recently paid
a $5 dividend. The firm's earnings per share have increased from $4 to $8 in 10 years, which also reflects the expected growth in dividends per share for the indefinite future. The share is selling for $40, and you think a reasonable required rate of return for the share is 20%.

Required:

Problem 1:
Calculate the value of each security based on your required rate of return.

Problem 2:
Calculate the expected return of each security.

Reference no: EM132993488

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