Case Study Sarah Bain is a 33-year-old entreprencur who is interested in saving on the Stock Exchange. She is risk-adverse in nature and has come to you an investment manager to gain advice. She wants to purchase a vacation home in the next 10 years. She also sourced the following information about the two top performing companies of the stock exchange: La Playa Resort International: The resort issues bonds, with a face value of $8000, that has a coupon rate of 8% that is paid annually. The bond matures in 10 years. They issued common stock that paid dividend of $1.80. The required return on the common stock is 6%. Dividend is expected to grow at an annual rate of 5% for the next three years followed by a constant annual growth rate of 4% in year 4. The resort also issues preferred stock which pays a dividend of $4.50 per share at the end of each year. The current price of the stock is $72. Mc Motors Incorporated The resort issues bonds, with a face value of $10000, that has a coupon rate of 14% that is paid semi-annually. The bond matures in 10 years. They issued preferred stocks that sells for $20 per share. The company just paid dividends of $1.82. The company expects a constant growth rate of 10% per year. They also issue common stocks that paid $5.66 in dividend last year. The expected growth rate is 6% for the foreseeable future. The required rate of return is 10%. Instruction: You are required to do up a report for Ms. Bain. A. The report should explain: 1. What a stock exchange is and the advantages and disadvantages of saving on it? (11 marks) 2. The two broad types of markets that exist in the financial arena and which would best suit Ms. Bain bases on her investment goal and risk tolerance. (8 marks) 3. The difference between stocks and bonds (highlighting the pros and cons of investing in either based on Ms. Bain's future goal). (11 marks) . Compute the following for Ms. Bain: 1. If the required rate of return is 11.5%, what is the value of resort's bond. (8 marks) 2. What is the current price of the resort's common stock? (10 marks) 3. What is the required rate of return for the resort's preferred stock? (4 marks) 4. If the required rate of return is 9%, what is the Mc Motors's bond (8 marks) 5. What is the required rate of return for the Mc Motors's preferred stock? (6 marks) 6. What is the current price of the Mc Motors's common stock? (4 marks)