Reference no: EM132959970

You have a choice between the following three investments:

• A zero-coupon corporate bond. The bond was issued 6years ago and has 6 years to maturity. It has a face value of $1500. Other bonds of a similar risk are trading at a yield of 8% p.a.
• An Australian Treasury bonds. The bond has a face value of $1500, 10 years to maturity and a coupon rate of 6%. If an otherwise identical 10-year bond were issued today, it would have to have a coupon rate of 8%, compounding semi-annually.
• An ordinary share. The share is expected to pay an annual dividend of $15 at the end of each of the next three years. After the third dividend is paid, the dividend is then expected to grow at a constant rate of 3.5% in perpetuity. Your required rate of return on this share is 10%.
• R Limited's preference shares are selling for $5.50 in the market and pay a 50 cent dividend, also preference share investor has a required rate of return of 15% p.a.

Required:

Problem (a) What is the value of the zero-coupon bond?

Problem (b) What is the value of the Treasury bond? ?

Problem (c) What is the value of the share? ?

Problem (d) What is the value of the preference share investor??