Question
Rebecca plans to invest in both stocks and bonds with $10,000. She will use $4,000 to buy stocks which are priced at $400 per share.
Rebecca plans to invest in both stocks and bonds with $10,000. She will use $4,000 to buy stocks which are priced at $400 per share. The stock pays a dividend per quarter at 10% of the stock price. Rebecca then plans to sell the stock right after the 8th dividend payment when the stock price is expected to double; she will use the left $6,000 to buy two-year bonds, which are priced at $600 with a face value of $640 and an annual coupon rate of 10%. The coupons are also paid quarterly. Then (1) what are the cash flow of the stocks represented by timelines over the two years? 6 points. (2) what are the cash flows of the bonds represented by timelines over the two years? 6 points. (3) what are the combined cash flows of the stocks and bonds, which list all the cash inflows and outflows Rebecca has from the investment in stocks and bonds? 4 points. (4) what is the IRR of Rebecca's investment? 4 points. Please round your answers to the nearest .01% for the IRR.
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