c1 QUESTION 2

You are considering three investments:

Bond that is selling in the market at $1,200. The bond has a $1,000 par value, pays interest at 14 percent, and is scheduled to mature in 12 years. For bonds of this risk class, you believe that a 12 percent rate of return should be required.

Preferred stock ($100 par value) that sells for $80 and pays an annual dividend of $12. Your required rate of return for this stock is 14 percent.

Common stock ($35 par value) that recently a paid a $3 dividend. The firms return on equity is 12.3%. The firms earning per share was $5.50 and it paid $3.20 in dividends per share. The stock is selling for $25, and you think a reasonable required rate of return for the stock is 20 percent.

Required:

a) Calculate the value of each security based on your required rate of return.

b) Which investment(s) should you accept? Why?

c) If you as company In deficit of fund, which source of capital will you choose? Debt or equity? Justify. please sir give all answer please.... sir don't give hand write plz............