Reference no: EM13598730

You have finally saved 10,000 and are ready to make your first investment. You have three following alternatives for investing that money;

• A CBS bond with a par value of 1000, 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. The stock recently paid a 2.10 dividend, and the firms earning s per share have increased from 2.40 to 4.48 in the past five year. An equivalent amount of growth in the dividend is expected.

Your required rates of return for these investments' are 6% for the Bond, 7% for the preferred stock, and 15% for the common stock. Using this information, answer the following questions;

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

b. Which investment would you select?

c. Assume Emerson Electrics managers expect and earning s downturn and a resulting decrease in growth of 3%. How does this affect your answers to parts 1 and 2?

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

In parts "a" to "d," clearly label the calculation of the required ratios and solve using Excel. Use formulas to calculate the ratios and format the cells to insert a comma if there is more than three numbers. Round to the nearest whole number. In parts "b" and "c,"