Part II: Bond and Stock Evaluation. This section of the test addresses the bond and stock valuation. Robert Campbell and Carol Morris are senior vice presidents of the bank. They are codirectors of the banks pension fund management division, with Campbell having responsibility for fixed income securities (primarily bonds) and Morris responsible for equity investments. Campbell and Morris, who will make the actual presentation, have asked you to help them by answering the following questions.

What is its market value of an issue of preferred stock outstanding that pays stockholders a dividend equal to $10 each year, if the appropriate required rate of return for this stock is 8 percent? What is the firms current stock price of a constant growth company whose last dividend (D0, which was paid yesterday) was $2.00 and whose dividend is expected to grow indefinitely at a constant 6 percent annual rate, if the appropriate rate of return for the firms stock is 16 percent?