1. ASSET VALUATION: You have accumulated savings of $50,000 and decided that you will invest in one of the following investment opportunities: a. Nationalism Commercial Bank bonds with a par value of $1,000, a semi-annual coupon interest rate of 9.75 percent per annum, are selling for $1,314 and mature in 12 years time. b. Guadiana Life Limited preferred stock paying a dividend of $3.50 and selling for $28.50. c. Grace Henderson Limited common stock selling for $39.75. The stock recently paid a $1.40 dividend and the firm's earnings per share has increased from $1.75 to $3.25 in the past five years. The firm expects to grow at the same rate for the foreseeable future. Your required returns for these investments are 3% for the bond, 5% for the preferred stock, and 15% for the common stock. Required: a) Based on your respective required rates of returns, calculate the value of i. Nationalism Commercial Bank bonds (8 marks) ii. Guadiana Life Limited preferred stock (4 marks) iii. Grace Henderson Limited common stock (8 marks) b) Which investment would you select? Why? (5 marks) (Total 25 marks) GROUP PROJECT 3 2. RISKS & RETURNS: A close family friend has approached you to help her determine which of the two common stocks she should invest in. Common Stock A Common Stock B Probability Return Probability Return 0.25 11% 0.25 -5% 0.15 15% 0.25 6% 0.50 19% 0.25 14% 0.25 22% Required: a) Calculate the expected returns of stock A (3 marks) b) Determine the risk (standard deviation) and return of stock A (4 marks) c) Calculate the expected returns of stock B (5 marks) d) Determine the risk (standard deviation) and return of stock B (6 marks) e) Which investment should your friend invest in? (3 marks) f) Jenny has decided that she will invest her $100,000 savings in stocks as follows: Company Percentage of investment Expected rate of return Standards Company Limited 35% 9% Starbucks 15% 12% Treasury Bill 40% 4% Required: What rate of return should Jenny expects to receive on her portfolio? (4 marks) (Total 25 marks)