You have finally saved $10,000 and are ready to make your first ing that money:

Question

You have finally saved $10,000 and are ready to make your first ing that money: Capital Cities ABC, Inc., bonds, which have a par value of $1,000 and a coupon interest rate of 8.75 percent, are selling for $1,314 and mature in 12 years Southwest Bancorp preferred stock is paying a dividend of $2.50 and selling for $25.50. Emerson Electric common stock is selling for $36.75. The stock recently paid a $1.32 dividend, and the firm's earn ings per share have increased from $1.49 to $3.06 in the past five years. The firm expects to grow at the same rate for the foreseeable future. Your required rates of return for these investments are 6 percent for the bond, 7 percent for the preferred stock, and 15 percent for the common stock. Using this information, answer the following questions.

Explanation / Answer

Bonds

Return = RATE(12,87.5,-1314,1000) = 5.17%

Preferred

Return = 2.5 / 25.5 = 9.80%

Common stock

Return = (1.32 / 36.75) + 4% = 7.60%

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