Reference no: EM132505172

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

(i) Capital Cities ABC, Inc. bonds with a par value of $1,000, a coupon interest rate of 8.75%, are selling for $1,314 and mature in 12 years.

(ii) Southwest Bancorp preferred stock paying a dividend of $2.50 and selling for $25.50.

(iii) Emerson Electric common stock selling for $36.75. The stock recently paid a $1.32 dividend and the firm's earnings per share has increased from $1.49 to $3.06 in the past six years. The firm expects to grow at the same rate for the foreseeable future.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:

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

Question (b) Identify which investment to be selected. State the reason.