ASSET VALUATION: You have accumulated savings of $1,050,000 and decided that you will invest in one of the following investment opportunities:

a. Nationalist Bank bonds with a par value of $1,000, an annual coupon interest rate of 9.75% per annum, paying semi-annually. The bonds are current being sold for $1,314 and mature in 12 years time.

b. UnderGrad Limited preferred stock paying a dividend of $3.50 and selling for $28.50.

c. Grace Limited common stock is 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. Nationalist Bank bonds (8 marks)

ii. UnderGrad Limited preferred stock (4 marks)

iii. Grace Limited common stock (8 marks)

b) Which investment would you select and why?