GROUP PROJECT

ASSET VALUATION:

An investor has accumulated savings of $$20,000$ and decided that she will invest in one of the

following investment opportunities:

a$.$ Bank of Commerce bonds with a par value of $$1,000,$ a semi$-$annual coupon interest

rate of $8\mathrm{.}75$ percent per annum, are selling for $$1,314$ and mature in $12$ years' time.

b$.$ Grand Palace Limited preferred stock paying a dividend of $$2\mathrm{.}50$ and selling for

$$25\mathrm{.}50.$

c$.$ Fashion Designer Limited common stock selling for $$36\mathrm{.}75.$ The stock recently paid

a $$1\mathrm{.}35$ dividend and the firm's earnings per share has increased from $$1\mathrm{.}75$ to $$3\mathrm{.}25$

in the past five years. The firm expects to grow at the same rate for the foreseeable

future.

The required returns for these investments are $6\%$ for the bond, $7\%$ for the preferred stock, and

$15\%$ for the common stock.

Required:

a$)$ Based on the respective required rates of returns, calculate the value of

i$.$ Bank of Commerce bonds

ii$.$ Grand Palace Limited preferred stock

iii. Fashion Designer Limited common stock

b$)$ Which investment should she select? Why?

$($Total $25$ marks$)$

GROUP PROJECT

RISKS & RETURNS:

A close family friend has approached you to help him determine which of the two common

stocks he should invest in$.$

Required:

a$)$ Calculate the expected returns of stock $A$

b$)$ Determine the risk $($standard deviation$)$ and return of stock $A$

c$)$ Calculate the expected returns of stock $B$

d$)$ Determine the risk $($standard deviation$)$ and return of stock B

e$)$ Which investment should your friend invest in$?$

f$)$ Farrel has decided that she will invest her $$100,000$ savings in stocks as follows:

Required: