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Lucky Jackson is trying to choose from among the best of the three investment alternatives recommended to him by his full-service investment broker. The alternatives
Lucky Jackson is trying to choose from among the best of the three investment alternatives recommended to him by his full-service investment broker. The alternatives are:
- The corporate bond of Star Mining Company has a face value of $1,000 and an annual coupon interest rate of 13 percent. The bond is selling in the market at $1,147.58. Of the original 20 years to maturity, only 16 years of the life of the bond remain.
- The preferred stock of Supernova Minerals Company has a par value of $100 per share and it offers an annual dividend of $14 per share. The market price of the stock is $140 per share.
- The common stock of White Dwarf Ores Company sells in the market at $300 per share. The company paid a dividend of $39 per share yesterday. The company is expected to grow at 3 percent per annum in the future.
Which of the three alternatives should Lucky choose and why? Remember the priority of claims for bondholders, preferred stockholders, and common stockholders.
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